Marc Faber: “Deeply Uncomfortable” About the Equity Market

Faber is another one of those excellent macro thinkers who has a very good feel for the markets in general. He’s bearish on stocks in general, but says if you want to own stocks you need to be bullish on the names that have been beat down the most.

  • He’s bullish on: Vietnamese, Japanese & Chinese equities.
  • At this moment, he’s not particularly bullish about anything.
  • He says he’s “deeply uncomfortable” about the current market environment and is concerned that the economic environment is extremely unstable throughout the globe.
  • He says the US Dollar could rally here. He’s also bullish on gold (as expected).
  • He views gold as an insurance policy.
  • The Euro is not a desirable currency to own.
  • The currency race to the bottom will continue.
Via CNBC:

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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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  1. Hello Cullen,

    My question below is not about the Marc Faber piece above.

    My question is about the Zero Hedge piece (Jan 7/13) “Dear Steve Liesman: Here Is How The US Financial System Really Works” here: http://www.zerohedge.com/news/2013-01-07/dear-steve-liesman-here-how-us-financial-system-really-works

    My question is: Isn’t Steve Liesman mostly right and Bill Frezza and especially Zero Hedge’s post “analysis” is mostly wrong?

    Thanks in advance, BR

  2. Strange posting stuff on Faber because his views on the monetary systems seem to be at odds with the real world (i.e. with monetary realism) — though in line with 99% of economists. Hence he speaks over and over about money printing and hyperinflation and future wars.

  3. I wonder how much of his angst flows from the fact that he is not a US based investor?

    Does location of residence affect your evaluation of the investment universe?

    I think it does.

  4. Thanks SS for the link to the thread on this topic. That’s a big help.

    So Steve Lieseman was mostly right and I did manage to hear him correctly and Bill Frezza and Zero Hedge were mostly wrong by repeating the conspiracy meme that weaves its way into so many blogs.

    I just went back to the audio and Steve said in part:

    “You cannot hypothecate excess reserves; they sit there on the balance sheet of the Fed.”

    and:

    “It is not something the banks are doing or can do”

    and:

    “The intention of the policy is to lower the interest rates, not create excess reserves.”

    and:

    “It is not showing up on the bank’s balance sheet; they have no requirement for this money”

  5. “Faber is another one of those excellent macro thinkers”

    I think you have lost it.

  6. Ah… Cullen, your 3rd bullet point contradicts your title. Is he “Uncomfortable” or “comfortable?” I think it’s clear that it’s the former, but just thought I’d point that out… in fact I’m deeply comfortable pointing that out.

  7. I got Cullen’s response to Frezza’s argument. However, it is still the case that equities have responded very strongly to monetary events. Granted, correlation is not causation, but the connection is hard to miss.
    Also, while I understand the ‘theory’, I would still question how banks are making their money in these days and how much trading-in-disguise is going on, given that banks are so totally non-transparent.

    I am in the camp of not being comfortable with equities either, but I recognize that most investors still value equities against artificially expensive treasuries.

  8. Stock index is a summary of mass pyscological conditions. How much debt is too much? As long as borrowers are confident for future, they will give them reasons to keep borrowing. People’s reactions on stock are far faster than economy – a CEO who is bearish takes time to plan and executive layoff. Mass psycology is summarized in price/volume charts. In my humble view, so called “fundamental” analysis is heavily biased toward limited factors. I remembered my dates in graduate school, while we did scientific reasearch, we first assume certain factors can be negelected (otherwise too many factors would prevent a research to go through). In economy/market analysis, people subjectively omit factors to support their hypothesis.

  9. Faber has been saying the SPX will drop 20% for a while and that volatility will increase, and so far nothing. He has been saying “Buy Gold” while gold has been going down from the 1900s. IMHO, he hasn’t realized economic conditions are not always reflected in the equity markets, especially when the printing press is running. Saying that something bad will happen eventually is not an investment strategy or a good investment advise. He’s been wrong for a long time now about SPX and I don’t see how gold and the dollar can move higher in-tandem.

  10. This gets away from Faber, but it gives a long-term reason to be defensive toward equities: “For the 50 years from 1951 through 2000, U.S. GDP growth averaged 3.3% per year. We can attribute this historical growth to three primary components: 1.4% from population growth, 0.3% from a rising employment rate, and 1.6% from growth of output per person employed (productivity). In the coming 20 years, all three components of growth will be much lower. Cullen, do you agree?

    Births and fertility rates are declining. Immigration has slowed to a trickle in response to harsh immigration policies and a dimmed growth outlook. For the next two decades, the U.S. population will grow by only 0.7% per year, half the rate of growth witnessed in the late 20th century. How do we get back to strong GDP growth with slow population growth?

  11. B-rated corporate bonds are an island of stability in these fragile and risky financial markets. I sleep much better with a big chunk of savings in corporate bonds than I ever would with it tied up in gold.

  12. Boston Larry,

    What do you think of something like this? (one page summary below):

    https://www.mybmoretirementaccount.com/MIWEB/PDF/INV/FFS999980428.PDF

    Here’s more:

    http://prtdocs.newriver.com/mitrust/999980428.pdf

    Forgive me if I’ve asked you before… I’m thinking maybe I did.

    I like the short term corporate bond funds too, but the above is my core holding now. I think we discussed slowly divesting from the above and getting back into equities in the past, no? Anyway, if I do that it will be a slow process because I’m not to motivated to make dramatic changes yet… (I really do hate all these budget/fiscal fights in the gov… and staying in a safe capital preservation fund lets me just cruise along on autopilot w/o getting caught up in the drama. But how safe do you figure? Ever hear of that kind of fund before?).

  13. @Tom, I am like you in that I have a bit more than 50% of my assets in the Stable Value fund within my previous employer’s 401k plan. I think these stable value funds are safer than almost anything else out there, although nothing is “perfectly” safe. It seems like a very good option to me.

  14. @Tom, but since you are only 47 (while I am 62 and semi-retired), then I think that you should start to venture out and not keep too much tied up in a very conservative fund that only pays 2.25% (my MetLife stable value fund pays about 3.1%). You should have at least 15% or more in dividend paying stock funds, (equity income funds)and another 25% or more in corporate bonds, either individual bonds or corporate bond funds like the LQD etf or similar. I like PIMCO Total Return bond fund and also Gundlach’s DBLTX from DoubleLine funds. I hold the etf DVY from iShares and like Equity Income funds that are widely diversified. I would not have any more than 50% at most tied up in your Stable Value fund. Good luck, Tom.

  15. BTW, do you understand these funds? … what “managed synthetics” are? How is it that they can do better than money market funds (quite a bit better) and keep a stable $1 per share value like money market funds? And why are they ONLY available in 401ks (not IRAs)? What’s the story there?

  16. I’ll get to it as soon as these debt ceiling / government shutdown / sequestration fights are over with…. Hahahahaha!

  17. BTW, good memory on my age!… I’m impressed… and a little creeped out (kidding!)

  18. @Tom, Another good “sleep at night” fund that I hold is the Vanguard Wellesley Income fund (VWINX) which going back 40 years has averaged over 9% a year. It holds 35% in conservative dividend paying stocks and 65% in conservative fixed income. For 40 yrs this has been a great fund – it is one that you can buy and hold. Of course it does have some volatility, but a whole lot less than almost anything else you might own. It lost some $ in 2008, but it wasn;t as big a loss than others, and itrecovered faster than most other funds.

  19. @Tom, they are only available inside a 401k in order to avoid “hot money” surging into and out of these funds. The managers are dealing with a set amount of money thst does not rapidly change. They mostly invest in corporate bonds, and sometimes derivatives tied to corporate bonds. It would not work if it wasn’t protected from huge swings of money coming in and going out. When I worked I used to lunch with a guy who managed this fund for my old company. hey pay out what they earned the previous year, so they can keep the NAV PRICE steady at $1.00. No junk bonds allowed, so defaults are almost nil.

  20. Great information… thanks! .. I’ve been asking that question occasionally on this site and others for nearly a year, and that’s the first good answer I’ve received.

  21. In general I’ve been a fan of Vanguard, and I was aware of that fund, but never put money in it. I’ll check it out.