Dr. Marc Faber Investment Suggestions For 2010

Some latest comments from Dr. Marc Faber: Investors likely to choose US over emerging mkts: Faber

• MUMBAI: Smart investors who made money in 2009 may sell emerging market stocks and start buying the S&P in the US as it may outperform because of a rally in the US dollar, says investment guru Marc Faber, the publisher of the Gloom Boom & Doom report, who predicted a stocks rally in early 2009 when it was gloom all around.
  
  “There are people who made a lot of money in 2009 and this category is concerned that the markets have overshot,” Faber said in an interview with ET. “So, some of them have taken profits and some of them are inclined to do so. In theory, it is possible that there is a dollar rally and an outperformance in the S&P vis-à-vis emerging markets.”
  
  Global stocks, commodities and precious metals have rallied sharply this year following an unprecedented easing of monetary policy by central banks across the globe to avert a 1930s-like depression. The rally has pushed mainly emerging market stocks to high valuations which may not be backed by a corresponding earnings growth. Hence, western investors who were borrowing cheap and investing in emerging markets may get back to buying assets in developed markets which are recovering and partly in anticipation of higher interest rates too.
  
  He ruled out yet another year of stellar performance for stocks. “I don’t think the S&P or any market would go up significantly after rising 50-100% in the last 8 months and I don’t see the markets rising the same way over the next 8 months,” Faber said. “Now, can they correct or go up 20-30%? The answer is yes.”
  
  The ‘risk-reward’ to invest in equities now is not as favourable as it was in March 2009, says Marc Faber, global investor and publisher of the Gloom, Boom & Doom report . In a chat with ET , he speaks about the US dollar and gold rather than equities. Excerpts:
  
  Stock markets have been indifferent to all the events, positive or negative, happening around of late. What is your take on this situation?
  
  There are two types of investors. There are investors, who read that markets were incredibly oversold at the end of 2008 and early 2009. Given the oversold nature of the markets, they invested in equities, commodities and went short on the dollar.
  
  These are the people who made a lot of money in 2009 and this category is concerned that the markets have overshot. So, some of them have taken profits and some of them are inclined to do so. Some people, who got it right in 2009, will now reduce their positions in emerging markets and go long on the S&P because, in theory, it is possible that there is a dollar rally and an outperformance in the S&P vis-a-vis emerging markets.
  
  The other type of investors got in totally wrong. They bought US government bonds at the end of 2008 and early 2009; they were in dollars and they could not get into equities at the right time because they thought it was a bear market rally. So, we still have a lot of cash on the sidelines.
  
  Now, I think these people will be forced to buy equities, especially that cash at zero interest rate and government bonds are not attractive investment options because if the economy recovers there could be pressure on interest rates sooner or later and inflation expectations will go up, government bonds will go down.
  
  So, where is the balance between equities and the dollar tilted in the coming months?
  
  In the long run, the dollar has to weaken. I started to talk about the equation of weak dollar-strong asset markets and vice-versa several years ago. Now this has become such an accepted rule that everybody knows it’s a strong dollar-weak asset market.
  
  The rules of the game might have changed somewhat and what you could get is six months of a strong dollar and strong US stock markets, relatively speaking. I don’t think the S&P or any market will go up significantly after rising 50-100% in the past eight months. I don’t see the markets rising the same way over the next eight months. The risk-reward is not as favourable as it was in March 2009.
  
  What can go wrong for equities in 2010?
  
  The geopolitical situation around has deteriorated very badly. When you think of it, nobody is interested in solving the problems, but a lot of money is being channelled into these issues. These issues may not have an immediate impact on equities, but if the situation escalates, it can have a serious impact.
  
  Secondly, without the intervention of the Fed, US mortgage rates will be much higher and also the interest rates on treasury bonds. So, we will have to see how far the quantitative easing will proceed to support the market. If it stops, the bond market, will seem quite vulnerable.
  
  So, if the 10-year treasury goes above 5.0-5.5% and the BBB, say 7%, then it will be quite a competition to equities.
  
  A section of the market believes that gold is overpriced and a lot of speculative money has entered it. Being an ardent supporter of gold as an asset class, how do you counter these arguments?
  
  In general, there is very little money in gold compared to bonds, forex and equities. Now, there has been some speculation, but please tell me any market where there hasn’t been any speculation. That’s the problem with zero-interest rates, people just value anything, even a stock paying 1% dividend is very valuable.
  
  Now, if I look at the growth in quantity of money worldwide, then gold around this level is not overpriced. Well, it’s not as much as a bargain as it was in 1999 to 2001, but I would believe that it’s not very expensive still now. When gold broke above $1,030, I said we have to wait to see a few days, whether it’s a genuine or false breakout. And it rose to the $1,200.
  
  Now, I suppose the $1,000-level, the level between $950 and $1,030, which was a resistance level, is the support. And central banks in the world will continue to print more money and there will be more quantitative easing and stimulus packages in the US. The fiscal deficit there will not come down much, so on that basis, gold has a place in every portfolio.
  
  What is your investment theme for 2010?
  
  In 2010, I would be just happy to preserve what I have made in 2009. You can make money here and there, but risks have increased and valuations are not as compelling as they were a year ago. In India, one has to focus on individual sectors. John Thorn, who runs the India Capital Fund where I am the chairman, is very optimistic about banks. So, that will be a sector to look at.