Marc Faber appeared on Bloomberg today to talk stocks and currencies. Not surprisingly, he’s negative on US equities, and though he thinks the euro could rebound in the short-term (because it’s so oversold) he says there’s nothing good about the currency and that it could fall a lot further.
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.
Picking up where he left off in his prior Bloomberg interview earlier this week, the author of the "Gloom, Boom and Doom Report" continues his bashing of the governments of all developed and overleveraged nations, which he claims will sooner or later default on their obligations. This could be the most scathing critique of the fiat-money system to date, which is the primary cause for the facility with which governments have accumulated untenable debt loads.
"In the developed world we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due, and these unfunded liabilities are so huge that eventually these governments will all have to print money before they default."
Sure enough, CNBC, and especially Dennis Kneale, was not too happy with his assessment.
“The market has become overbought. There isn’t a meaningful improvement in the economy taking place. The economy may disappoint somewhat in the next few months. The statistics that are being published are very questionable. The economy has stabilized, but isn’t really expanding.”
“With unemployment staying at a relatively high level and with the revenue side being weak, I don’t think that corporate profits will be that great in 2010. Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak.”
Faber goes on to explain that expectations are running hot now and could be well ahead of the fundamentals:
“This year, investors will never achieve returns as high as in 2009. Stocks are relatively high compared to the fundamentals.”
Faber views the recent downturn in financials as a shot across the market’s bow:
“Financials have already been quite weak. It’s kind of a warning sign for the market. They may weaken further, especially the banks. Also commodities-related stocks could weaken somewhat as commodity prices ease.”
But that doesn’t mean stocks will go down all year. Faber sees a Spring rebound:
“Usually March, April are seasonally strong months. We’ll get a rebound. In general, high-quality and large market capitalization stocks are reasonably priced considering you have zero interest-rates. As these markets go down, the high-quality, large-market-cap stocks will go down less than the smaller-cap stocks.”
In last week’s Barron’s Roundtable, Faber expressed his negative views on the full year outlook. He says he wouldn’t be shocked if the market closes lower on the year due to complacency:
“I wouldn’t be surprised if the market closes down this year. There is a lot of complacency among investors, and geopolitically, the world looks horrible.”
After every financial crisis there’s a sovereign debt crisis, Marc Faber says. Countries that borrowed too much during the boom times start struggling to pay their competitors back, and eventually some of them default.
The countries most likely to blow up this time around are the "PIIGS": Portugal, Ireland, Italy, Greece, and Spain. One ore more of them, Faber says, will likely default in the next couple of years. And, that could result in the death of the Euro currency.
Longer-term, Faber says, Japan and the US are in line for the same fate.
Question Of Timeframe
Marc Faber says "The US crisis won’t hit us this year or next year. But within 5-10 years, the United States will be forced to quietly default on its debt, most likely by printing money and destroying the value of the currency."
I like that timeframe. People expecting the US$ to implode right here right now are simply too early in my estimation. As for five years from now, I will reassess later. There are too many things happening right here right now to worry about 5-10 years from now.
Certainly the PIIGS are near the top of today’s list of worries. Moreover, we can easily have a crisis in places eyes are not focused such as Mexico. Is anyone even looking at Mexico or what a housing crash might mean to Canada or Australia?
Let’s not forget that Japan’s rapidly aging demographics suggests that Japan crisis will hit before the US. Japan’s debt is approaching 200% of GDP, Japan is mired in deflation, and its aging workforce now needs to draw down on savings, in retirement. The belief that "Japan is a nation of savers and the US is a nation of spenders" is about to be shattered. Secular spending trends in both countries have peaked, in opposite directions.
Finally, the love affair with China is way overdone. The amount of fiscal stimulus and monetary printing is off the charts. China is a bubble waiting to burst. I am in the camp, and have been for years, that if China floated the RMB it might crash, not soar.
It’s been bad news and negative predictions after bad news and negative predictions all day, but no worries, the market keeps going up! And so do the doom charts. Soaring – budget deficit, government borrowing, government debt to GDP ratio, social security, medicare and other liabilities, Fed’s MBS purchases. – Ilene
The U.S. is headed for a major debt crisis, Marc Faber says.
It won’t hit us this year or next year. But within 5-10 years, the United States will be forced to quietly default on its debt, most likely by printing money and destroying the value of the currency.
The main problem comes down to two things: 1) ballooning debts and 2) future interest costs.
As these charts show, in the past decade, the U.S. government’s total debt and liabilities have gone through the roof, especially when Fannie, Freddie, Medicare, and Social Security are taken into account. This trend is unsustainable, and it will correct itself only through a rapid acceleration of economic growth and tax revenues, a new-found financial discipline, or a crisis--or a combination of all three.
The second problem is interest costs. Right now, the government’s debt and deficits aren’t creating an undue burden because the government can borrow so cheaply. Eventually, however, as the country’s financial situation gets weaker, interest rates will likely rise, and our interest costs will go through the roof.
According to Faber, our annual interest costs currently amount to 12% of the government’s tax revenue. Within five years, Faber estimates, these costs will soar to 35% of tax revenue. This will force the government to cut spending (unlikely) and/or frantically print money.
As the maestro, Greenspan, was ultimately shown to be greatly mistaken, perhaps even a fraud, so eventually Ben Bernanke also will be shown to be cut from the same cloth, with less verbal acuity. His approach to the US banking system is naive, as one might expect from an eager student with little or no practical experience.
"Mr. Bernanke, an academic who has never worked a single day in his life. He will take anything off a cliff: a business, a McDonald’s stand, the Federal Reserve. And I have to say I have a certain sympathy for him as a character. He’s ok, but completely useless. I would not even hire him as my butler…Mr Bernanke is a madman, a destroyer of the value of money. And he is a wealth destroyer and an economic criminal. It is the duty of a central bank to keep the value of money. I believe today for ninety percent of Americans life is harder than it was in 1999. Basically I think they are a bunch of crooks."
Marc Faber on King World News
"There is no room for ambiguity in this story. Bernanke was at the Fed since the fall of 2002. (He had a brief stint in 2005 as chair of President Bush’s Council of Economic Advisors.) At a point when at least some economists recognized the housing bubble and began to warn of the damage that would result from its collapse, Bernanke insisted that everything was fine and that nothing should be done to rein in the bubble." Bernanke and the Corruption of Washington Culture – Dean Baker
We’re starting a regular new feature at TPC in which we’ll summarize some of the most recent macro and micro outlooks from so-called investment gurus. This week’s edition will start with two investors who have handled the crisis (and recovery) remarkably well: John Paulson and Marc Faber. Both have similar macro outlooks:
John Paulson: Paulson made waves in 2008 with his billion dollar gains from the sub-prime crisis. The master wave rider was short all the way down and then reversed his bearish course in stunning fashion as he went long the very same things he made so much money betting against. In late February he referred to the market as the “buying opportunity of a lifetime”. Paulson’s reflation trade is turning out to be another home run. Paulson clearly believes in the Fed’s ability to reflate us out of this mess. In the last 6 months he has made massive bets on gold and gold related equities. In addition, Paulson has put his money on the opposite side of the trade he made a killing in last year – he now owns massive stakes in several large banks including Bank of America as well as the toxic Capital One Financial. Paulson is even putting together money for a “real estate recovery” fund.
His latest 13-F shows an interesting mix of financials, gold and healthcare related names. The hedging behind this allocation is quite brilliant. He owns massive stakes in defensive healthcare names, large stakes in the full blown recovery names (banks) and the gold positions will serve as a hedge against inflation and/or the doomsday scenario. Paulson, clearly believes inflation is likely to occur in the coming years as his bets on hard assets and real estate show.
Marc Faber: Faber has been remarkably prescient over the course of the last few years. He was very bearish throughout all of 2008 and turned bullish on March 9th of 2009 – the day the market bottomed. He even said the market was due for a 6 month rally.
The big news of the day is obviously the weak dollar.
As the headline of a must-read article in Bloomberg states: "Dollar Reaches Breaking Point as [Central] Banks Shift Reserves [Away from the Dollar]".
AFP points out that – whether or not the report from the Independent that many countries will price oil against a basket of currencies and gold in the future is true (see this and this) – confidence in the dollar is so weak that investors and banks are using it as an excuse to get out of the dollar.
Business insider notes that the S&P has fallen back to 1996 levels in dollar-adjusted terms.
Obviously, the trend line for the dollar is going down in the medium to long-term.
And yet there are strong arguments for a short-term dollar rally the next time the market crashes.
The key question is whether the dollar will behave the same way it did in the 2008 crash. The currency chief at HSBC – David Bloom- doesn’t think so:
The dollar rallied last year because we had a global liquidity crisis, but we think the rules have changed and that it will be very different this time [if there is another market sell-off].
But the dollar wasn’t the basis for a carry trade last year. If the markets crash, the dollar trade may unwind, pushing the dollar higher.
Moreover, does the fact that many top economists say that it was not really a liquidity crisis but an insolvency crisis undermine Bloom’s argument?
It is vital for investors and financial analysts to figure out whether or not Bloom is right. If he’s wrong, then getting out of the dollar to soon would be counterproductive. If he’s right, getting out too late would be suicidal.
Marc Faber actually argues that it is the other way around: when the dollar rallies, then the markets will tank, as investors will suck money out of the markets to buy the dollar.
Marc Faber believes capitalism and the dollar are headed towards collapse, but it won’t be reflected in the market for the next few years. He presents good reasons for the collapse of capitalism (though many would argue it’s dead already). Why is there a disconnect between his future prognosis and his feeling that the markets will hold up for a while? Because "people [will be] expropriated without really noticing it right away, but one day they notice… then to divert the attention from the public the governments then go to war…" Worth watching the video. – Ilene
"The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society," Marc Faber writes in the September issue of The Gloom, Boom & Doom Report.
A statement like that pretty much speaks for itself, but it’s a bit more complicated than appears on first blush…
"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident...And yet none of this conduct has been punished in any significant way."
~ Charles Ferguson, Inside Job
"I know that my retirement will make no difference in its [my newspaper's] ca...
We are discreet sheep; we wait to see how the drove is going, and then go with the drove. We have two opinions: one private, which we are afraid to express; and another one – the one we use – which we force ourselves to wear to please Mrs. Grundy, until habit makes us co...
The S&P 500 got off to weak start and, after retracing a modest morning rally, spent most of the day in the shallow red with an intraday low of 0.63%. But in the last seven minutes of trading, the index recovered enough to a make a small gain of 0.14%. This is the fourth advance, the first was Monday's 1.60 surge, but the last three have ranged from 0.05% to 0.17% with today's close near the high of the miserly three-day series.
The index is now up 5.02% for 2012, which is 6.93% off the interim closing high.
From an intermediate perspective, the S&P 500 is 95.2% above the March 2009 closing low and 15.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
TIF - Tiffany & Co., Inc. – A surprise earnings miss and a reduced full-year profit and sales forecast from luxury jewelry retailer, Tiffany & Co., took some of the luster out of its shares today, with the stock trading down 8.5% at $56.55 as of 11:50 a.m. in New York. Options activity on Tiffany this morning suggests mixed sentiment on the st...
RealNetworks, Inc. (NASDAQ: RNWK) today announced that it has reached an agreement with the Washington State Attorney General over discontinued e-commerce practices. In accordance with the settlement agreement, RealNetworks has committed to:
Discontinuing the use of pre-checked boxes for purchases of RealNetworks subscription products; Spelling out more clearly the material terms of RealNetworks product offerings; Offering online cancellation of subscription offerings; Enhancing RealNetworks customer support guidelines regarding cancellation. Statement from Thomas Nielsen, President & CEO of RealNetworks:
"About two years ago, the Washington State Attorney General's Office contacted us regarding concerns they had with some of our e-commerce practices.
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
First we'll go to the technicals. Back in mid April I had opined a 'bear flag' formation was being created. [Apr 17, 2012: Potential Bear Flag Forming] But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs. This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market. Generally a bear flag will resolve relatively quickly but the longer...
Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that t...
Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit
Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro. Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.
So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:...
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In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(