Legendary investor Marc Faber is out with his latest issue of the Gloom Boom and Doom report. Here are a few highlights:
1. Stocks—Still cautious on US and developed markets and expects a short term correction. In particular, Faber points out that while the Dow made a new high, the transports have not yet confirmed the move, which is bearish. Another warning sign is the failure of the Russel 2000 small cap index to make a new high. This is important because it has until now lead the general market. Furthermore, the internal market breathe (NYSE new highs) has been steadily falling, despite a rising market. Longer-term, Faber is pretty constructive on the stock market as the Fed will simply not let the market decline very much.
2. Emerging Markets–Faber remains very bearish on emerging markets in general (Brazil, India, etc). He notes that many failed to make new highs in January, despite favorable market conditions, which could indicate a major top in some emerging markets. Faber thinks emerging markets could fall between 20-30%. In fact, this would be a great buying opportunity for investors.
3. Commodities–Faber is concerned about commodities, as they are currently very overbought by almost any measure. He goes on to say that commodities seem to have reached the parabola stage–going straight up, which is usually the very end of the move. Yes, it could last longer than anyone expects, but at some point prices will collapse again, as they did back in 2008. This cycle, Faber notes, always occurs as higher prices lead to an increase in supply, which eventually overwhelms the market causing prices to fall. The cycle is longer for industrial commodities compared to agricultural prices as it is harder to build a new copper mine than it is for a farmer to plant more soybeans. This cycle will play out even with the Fed’s money printing. Investors should prepare for some downside volatility in commodity prices.
4. Gold and Silver–Long term Faber is still bullish on the metals, but he thinks they could fall in the short term with the general market. Gold could fall to the $1,100-1,200 area. For investors this should not cause any alarm because with the fiscal problems of the US and further monetization, the future for gold is still bright. Faber would use any decline to add to his positions.
5. Real Estate–No, Faber is not calling a bottom in US real estate, but he points out that relative to other asset classes, real estate is cheap. He would consider buying a home as long as you are prepared to live in it for a while. Faber also postulates that if housing continues to decline, commodities and stocks may sell-off even more.