FABER: DON’T BUY THE RALLY
Marc Faber, who nailed both the economic downturn and the recovery, is telling investors to be cautious about buying stocks at current levels. As he mentioned in his 2010 outlook (see here) Faber says stocks are unlikely to reach new highs in 2010 and are more likely to correct further. He predicts the equity markets will end lower in 2010, but are unlikely to decline substantially due to government intervention:
“I would look at the market to close probably a bit lower than it started the year in 2010.” Equally, I don’t think we have a huge downside risk. If the Dow and the S&P dropped, say 15-20 percent, in other words the S&P towards 900, I think there would be more stimulus and more quantitative easing.”
Faber predicts that we are nowhere near the end of economic weakness and that the government will continue to pour money into the economy due to continuing deleveraging in the private sector. He believes we are likely to see more stimulus packages in the US and an ever expanding Federal Reserve balance sheet.
In terms of the global economy, Faber also expects slowing growth. He says China is likely a bubble and that there is a 99% chance the economy will slow with a 30% chance of a full blown crash. He says the Chinese slow-down will have extremely negative impacts on the global recovery.
Faber says the Chinese and US governments have only prolonged our problems with their stimulus packages. He says we are now staring at the next great crisis as opposed to letting the system cleanse itself as it should have. Due to this, government debts have exploded and Faber says higher rates are guaranteed over the next decade.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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5 Comments
for a guy that runs only $300MM of money (in a non-tax jurisdiction to boot), he has alot of ideas
Faber is sharp as a tack. Some people like to knock him because he seems to be an a never ending interview tour, but he knows his stuff.
you may have gathered that i am more interested in making money than getting the “right” take on the macro/fed tea leaves; while i acknowledge that getting the latter right is a great way to position yourself to make money, one can also get lost in the detail thicket of econ/fed policy and get too frozen by indecision to make simple investment decisions. to me, guys like faber tend to take somewhat over the top positions to get noticed, which if you don’t take with a grain of salt, will keep you from making money. same with guys like rosenberg. balance is a good thing.
btw, i think your site provides great balance; i am just giving you one investor’s reaction to some of the negativity that seems to be more interested in self promotion than investor enlightenment.
If I remember correctly, Faber made the right call in the downturn but still managed to lose his client more than 30%.
Hi!, People:
People usin their $$’s to attempt to leverage a return on where they place their funds tend to use the word “investor or investing” which in todays’ economic climate is totally impossible, because investing is a guaranteed return on your money but with the uncertainties inherent within todays’ markets encluding what will be the next inflation rate connected to interest rates, makes everything into which money is placed a pure speculation instead of an investment.
As someone told me years ago: When the gov. becomes corrupt the people at large become corrupt and so we are even now corrupting the use of our terms as to where we place our risk capitol. Today, the meaning of that is definitively called “speculation” and definitely not investing, because the days of actual investing are long gone sense Nixon closed the US gold window pluss attached wage/price controls, in his lone effort to stave off the future invlation which automatically kills the world of investing.
We will not see a renewed invironment that accomodates a true investing environment; until we see any possibilities of future inflation ever kicking in to modify our rates of return on wehre we place money for any kind of a return.
Speculating in todays’ markets takes special skills not required of investors of yore. Just to hold $’s is a speculation on the future value thereof which can require those holding $’s to speculate on holding foreign currencies as a hedge, in order to hold on to their present purchasing power pluss perhaps profit. The whole idea of speculating can work both ways either for or against those holding them, as the currency fluctuates in foreign exchange markets daily during trading.
Therefore, we are no longer investors but speculators!
Cheers,
Russ Smith, California
resmith@wcisp.com