Markets could correct in October-November: Marc Faber

28 Sep, 2010, 03.47PM IST,ET Now
Markets could correct in October-November: Marc Faber


Marc Faber, Publisher, Gloom, Boom & Doom Report, spoke to ET Now on a range of issues including the current market scenario, emerging markets, Fed’s policies and US bond markets, among others. Excerpts:

You are known as Mr Contrarian in India. You always like to advise the reverse of what the global consensus is. The current global consensus is ‘buy and sell US bonds’. What is your take?

That’s correct and there in general, I am still positive about economic growth in the emerging world. But what disturbs me at the present time is that in late August, sentiment was very negative worldwide and people said that Dow will drop to 1000 and so forth and so on. Suddenly now, the consensus is that you have to be in equities, you have to be in gold, you have to be in assets because central banks around the world will print money. That is correct, they will print money. But sentiment has become so universally bullish that about all assets, including especially emerging economies - in US dollar terms - are up. The Indian market this year is already up 19%, Malaysia 28%, the Philippines, Indonesia and Thailand each over 40%.

We already have big moves and I see all the brokers upgrading the earnings estimates and so forth. So I become a little bit apprehensive about this universal bullishness. I would rather think that after a strong month of September - when everybody was expecting September to be a horrible month - October and November may be bad months. In the past, October has frequently been a disastrous month like we had the October 1987 crash, we had the late September-early October 1929 crisis. In 1976 and 1978, we had very bad months in October and November. So who knows, out of this present bullishness, we could have some kind of a sharp developing.

Which markets are you particularly bullish on now and considering the fact that India is already quoting at high valuations, where does India stack up in your list?

In general, investors should one day have approximately 50% or more of their money in emerging economies. I have all my money in emerging economies for the money that they allocate to real estate and to equities. Of course I also have bonds in the developed world and also cash in on the developed world, but in general, I am very optimistic about the emerging economies. But that does not change the fact that over the last few months, in fact since April because I saw that April would be a high for the S&P at 1219, I have taken some money off the table because a correction is overdue.


Emerging markets are of two categories. One of the categories is emerging markets which are heavy on commodities. The second category has emerging markets like India which are heavy on consumption. Within the two categories, what is your preference?

In general, when emerging economies go up, also go up because the two are very closely related in the sense that most resources allocated in emerging economies have a very close correlation. Now, when commodity prices go up strongly in a country like India, it benefits some parts of the economy, some segments of the population. For example, if agricultural prices go up, then the rural sector does well. In India, the urbanisation rate is just 30%. So if rice prices, sugar prices, cotton price and so forth go up, the rural sector benefits whereby the urban centre is frequently squeezed by higher food prices.

So it’s a mixed picture. But in general I would say - if I look at rural areas in , in Indonesia, Malaysia, Thailand, the Philippines and also India - the rural areas are doing very well. So it’s a plus for their economies because by and large the urbanisation rate in the case of India is still relatively low.

You have been a strong critic of Fed’s policies. How do you see the highly leverage balance sheets of the Western world effecting the kind of dollar inflow that we are seeing in markets like India?

My principal criticism is that the Federal Reserve can drop dollar bills onto the United States from helicopters as Mr Bernanke says - not from helicopters but electronically they can print money. The criticism I have is that Fed can control the quantity of money quantity that it drops onto the United States. But they do not control where it will flow to and this money has flown through the American trade and current account deficit to emerging economies and this has boosted the growth rates in emerging economies and their currencies. So the benefit of expansionary monetary policies has not been felt in the United States, but in emerging economies and that is my main criticism.

Now what happens if so much money flows to emerging economies is that you get bubbles over time - currency bubbles, stock market bubbles, real estate bubbles. The question is then how do these emerging economies’ central banks react to that. The Brazilian Finance Minister has just said we are in the midst of a currency war, a foreign exchange war and the central banks of emerging economies have a choice to do nothing - then they have high domestic inflationary pressures with accompanying bubbles - or they tighten monetary policies and their currency becomes even stronger and you have a speculative bubble in the currency. So the Fed has put them actually in a very difficult position and I believe we are going to end up with bubbles in precious and to some extent in emerging economies’ real estate and equity markets and every bubble eventually bursts. It does not have to happen tomorrow. It could last another year, but the Fed is actually endangering emerging economies at the present time.



Which are the three commodities or sub-commodities that you are currently bullish on?

I still like the agricultural commodities, but they have had a very big move - in some cases 50% - over the last 3 months. So potentially, we will get kind of a setback here, a correction. But in general, I am still positive on agricultural commodities and I am still positive about precious metals whereby precious metals have become very popular lately and they have been very strong, including gold, silver, platinum, palladium and a correction is also overdue.

The whole world is now optimistic and positioned to take advantage of forever expansionary monetary policies by buying assets, precious metals, real estate, equities, and everybody believes that the central banks in the world will print and print and print and print. That is correct, they will do that, but they printed, printed and printed and we still saw a financial crisis in 2008. So I can print and print and print, and you can still have big corrections in the market. But I believe that if the S&P in the US drops 15-20% to around 900-950, the Fed would come out not with this quantitative easing No. 2, but with quantitative easing No. 2, 3, 4, 5, 6, 7, 8, 9, 10 until the asset markets go up again. They are going to print and print and print.


You just mentioned that October-November could see some correction. Do you really see the S&P falling about 10-15% like you just mentioned? How bad could it get?

We have high volatility in all markets, a 10% move is nothing now-a-days. We have very high intraday volatility in the markets. We had never before so many up days with volumes of 9 to 1 and down days with volumes of 9 to 1. The downward volume is 9 times the upward volume and on up days, the up volume is 9 times the down volume. This is most unusual. So we have this volatility and this volatility comes about because the private sector is basically still deleveraging while the government sector is leveraging up. So you have economic and financial volatility in markets that is very high.


What do you make of crude/oil? Over the years, we have interacted with you, you have always maintained a bullish outlook on crude and crude prices.

Yes, I am still positive about oil and I am aware that some analysts predict oil prices to drop to $30 and copper prices to drop 70%, but the fact is simply the oil demand now-a-days in emerging economies exceeds for the first time in the history of capitalism. The oil demand in the developed world and this oil demand in emerging economies will continue to go up. So the demand side looks quite strong.

On the other hand, you have prices between $70 and $80 and someone could argue well that that is a very high price and so maybe prices will temporarily decline - that may be the case. But I would like to point out that for any oil company to go and explore and drill for new oil, the oil price has to be around $70. Otherwise, they would not do it because the marginal cost of new production is around this level.

Secondly, unlike say a farmer who harvests, oil is a finite resource in the sense that once you pump it and you burn it, it is no longer there. The farmer can harvest his crop every year again and again and again. In the case of oil, once you pump it, it is gone and you use it. So in most countries, oil production is going down and oil reserves are going down. In other words, the world will hit one day peak oil, the way the US hit peak oil in 1970. So the dynamics between the demand and the supply side look actually quite promising in the long run.

If you were to today - with Sensex at 20000 levels - construct a portfolio across asset classes when it came to India, equities, commodities combined, what would it comprise of?

Basically I am not very keen to buy emerging economies at the present time and I would rather lighten up positions. As far as the equity allocation between equities, bonds, cash and precious metals, commodities and real estate is concerned, that depends on every individual. It is like if you go to the doctor and you tell him ‘oh, what kind of pills shall I take?’ That depends very much on the individual, on the status of his health, on his ailments and so you cannot generalise.

But for me, I like Asian real estate, I like equities in Asia, I still like precious metals and I like in particular physical precious metals. I also own gold shares because I am the chairman of several resource related companies, mining companies in the exploration domain and so I own them. But my preference is for physical gold and silver and then I own real estate and I have some bonds not because I particularly like bonds, but I look at corporate bonds as kind of an equity with a relatively high dividend.


I have cash and because I am in the investment business, I benefit when markets go up. So my asset allocation into equities does not have to be as high as, say, somebody else’s is.

If I put a gun to your head and if I tell you, ‘Marc, lock a trade for next three years, only one trade, long/short you take your pick but only one trade,’ which will you open and keep it open for next three years? Identify that golden trade for us.

In three years or 10 years time, precious metals will be higher than they are today. But we may have a correction coming in the next, say, three months. But in general, when I look at the risk and the reward, it is very likely that precious metals will continue to perform reasonably well. But if S&P drops to around 950, then the Fed will again massively ease and print money. So the surprise could actually be that in nominal terms, equity markets actually go up. They may not go up in gold terms, but they may go up quite strongly in nominal terms. So I would not be overly bearish about equities.

Last time when we interacted, you were bullish on wheat, you were bullish on orange juice and you were bullish on sugar. Do you still like all these 3 agri commodities?

Yes, I still like these commodities, but because they moved up so strongly, I would be a little bit careful about mortgaging my house and buying all these commodities. They will continue to move higher, but corrections can occur. What disturbs me is this kind of universal belief that you have to be in commodities, you have to be in precious metals, you have to be in equities and not in cash because governments - in others words central banks - will keep on printing money and the value of paper money will go down. I agree with that but as I pointed out, we can still get meaningful corrections as occurred in 2008.

You have often reiterated to S&P going back to 900-950 levels. By when do you really think that would happen?

I cannot tell you on which date the S&P will hit 950. But the case is simply that some people say the S&P will drop to 400. I have maintained since March 6, 2009 that 666 on the S&P was a major low and that we will not go below that level. This is still my view. I think a correction is still overdue, but not new lows and afterwards they will print and print and print and the equity prices will go higher. More than that, I do not know.

Talking about the US bond markets, the return in last 3 months from US bonds has been quite extraordinary. The general consensus is that US bonds currently are a bubble. What is your take?

Basically the bond market in the US has been in a bull market since 1981. In my view, the bull market ended on December 18th, 2008 when the 10 years treasury yield reached a low of 2.08% and the 30 years yield of 2.53%. But the bulls on bonds - the so-called deflationists - will maintain that bonds will continue to rally and that the 10 years yield and the 30 year yields will drop to between, say, one-one quarter per cent and two per cent.

I do not think that this will be the case because if the economy weakens again and you have deflation, that would be required to get these yields down there. You would have further massive fiscal stimulus and as a result of that, the deficit and the government’s debt go up and then the interest payments on the government debt go up. The ability of the government to pay the interest on its debt will diminish if the credit quality goes down. For that reason, I do believe that we will see new lows in interest rates.

So we had the bull market in bonds that lasted 1981 to 2008 - in other words 27 years - and now we are in a bear market for bonds that may last 20 years and bring yields to record highs that would mean on the 10 years note a yield of over 15%.


What is the call on currencies though any trade or investment that you would initiate at this point?

My preferred currencies are gold and silver.

http://economictimes.indiatimes.com/opinion/interviews/Markets-could-correct-in-October-November-Marc-Faber/articleshow/6643230.cms?curpg=2

Marc Faber: The next bubble being inflated right now

Faber: Next Stimulus Will Be Worse

Wednesday, July 15, 2009 3:46 PM

By: Julie Crawshaw Article Font Size

Some economists think that another bubble is what’s needed to get the economy moving again.

Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again.

The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview.

Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product.

Unfortunately, Faber said, the next bubble is already here. This time it’s government spending and fiscal deficits that Faber thinks will double the government’s debt during the next six years or less.

“The U.S. government is largely deranged,” he said. “The private sector is the dynamic one, and that’s why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector.”

Another stimulus package would only make matters worse.

“In the Depression, they had one stimulus after another and it didn’t help,” Faber said. “What helped was World War II.”

The problem with bubbles, Faber said, is that they only temporarily stimulate the economy.

“The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite,” he said.

Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed’s policy of keeping interest rates too low.

“The Fed, in my opinion, has zilch idea about monetary policy,” Faber said.

“What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it’s a basket of goods and services.”

When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won’t let happen because it could cause interest payments on the government’s debt to double. Those payments today are slightly below $500 billion annually.

If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation.

Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier.

“I think we’ve just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming,” Faber said.

© 2009 Newsmax. All rights reserved.

http://www.thedailycrux.com/content/2349/Economy/eml

http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html

Buy China, emerging markets over 2 years, Marc Faber says

Buy China, emerging markets over 2 years, Marc Faber says
Monday, 16 March 2009 13:56

CHINA AND OTHER emerging markets offer value over the next two years as growth picks up, investor Marc Faber said.

Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund.

Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website.

He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”.

Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”



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Monday, 16 March 2009 © 2009 - The Edge Singapore


Last Updated on Thursday, 19 March 2009 13:01
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Buy China, emerging markets over 2 years, Marc Faber says

Buy China, emerging markets over 2 years, Marc Faber says
Monday, 16 March 2009 13:56


China and other emerging markets offer value over the next two years as growth picks up, investor Marc Faber said.

Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund.

Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website.

He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”.

Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”



Monday, 16 March 2009 © 2009 - The Edge Singapore


Last Updated on Tuesday, 17 March 2009 11:53

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