Via Barron's,
Faber: This morning, I said most people don't
benefit from rising stock prices. This handsome young man on my left
said I was incorrect. [Gabelli starts preening.] Yet, here are some
statistics from Gallup's annual economy and personal-finance survey on
the percentage of U.S. adults invested in the market. The survey, whose
results were published in May, asks whether respondents personally or
jointly with a spouse have any money invested in the market, either in
individual stock accounts, stock mutual funds, self-directed 401(k)
retirement accounts, or individual retirement accounts. Only 52%
responded positively.
Gabelli: They didn't ask about company-sponsored 401(k)s, so it is a faulty question.
Faber: An analysis of Federal Reserve data suggests that half the U.S. population has seen a 40% decrease in wealth since 2007.
In
Reminiscences of a Stock Operator [a fictionalized account of the
trader Jesse Livermore that has become a Wall Street classic], Livermore
said, "It never was my thinking that made the big money for me. It was
always my sitting. Got that? My sitting tight." Here's another thought
from John Hussmann of the Hussmann Funds: "The problem with bubbles is
that they force one to decide whether to look like an idiot before the
peak, or an idiot after the peak. There's no calling the top, and most
of the signals that have been most historically useful for that purpose
have been blaring red since late 2011."
I am negative about U.S.
stocks, and the Russell 2000 in particular. Regarding Abby's energy
recommendation, this is one of the few sectors with insider buying. In
other sectors,statistics show that company insiders are selling their
shares like crazy, and companies are buying like crazy.
Zulauf: These are the same people.
Faber:
Precisely. Looking at 10-year annualized returns for U.S. stocks, the
Value Line arithmetic index has risen 11% a year. The Standard &
Poor's 600 and the Nasdaq 100 have each risen 9.4% a year. In other
words, the market hasn't done badly. Sentiment figures are extremely
bullish, and valuations are on the high side.
But there are a
lot of questions about earnings, both because of stock buybacks and
unfunded pension liabilities. How can companies have rising earnings,
yet not provision sufficiently for their pension funds?
Good question. Where are you leading us with your musings?
Faber:
What I recommend to clients and what I do with my own portfolio aren't
always the same. That said, my first recommendation is to short the
Russell 2000. You can use the iShares Russell 2000 exchange-traded fund
[IWM]. Small stocks have outperformed large stocks significantly in the
past few years.
Next, I would buy 10-year Treasury notes,
because I don't believe in this magnificent U.S. economic recovery. The
U.S. is going to turn down, and bond yields are going to fall. Abby just
gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so
I will go short.
...
What are you doing with your own money?
Faber: I have a lot of cash, and I bought Treasury bonds.
...
Faber:
I have no faith in paper money, period. Next, insider buying is also
high in gold shares. Gold has massively underperformed relative to the
S&P 500 and the Russell 2000. Maybe the price will go down some from
here, but individual investors and my fellow panelists and Barron's
editors ought to own some gold. About 20% of my net worth is in gold. I
don't even value it in my portfolio. What goes down, I don't value.
...
Which stocks are you recommending?
Faber:
I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I
don't own it. I own physical gold because the old system will implode.
Those who own paper assets are doomed.
Zulauf: Can you put the time frame on the implosion?
Faber: Let's enjoy dinner tonight. Maybe it will happen tomorrow.
...
There
is a colossal bubble in assets. When central banks print money, all
assets go up. When they pull back, we could see deflation in asset
prices but a pickup in consumer prices and the cost of living. Still,
you have to own some assets. Hutchison Port Holdings Trust yields about
7%. It owns several ports in Hong Kong and China, which isn't a good
business right now. When the economy slows, the dividend might be cut to
5% or so. Many Singapore real-estate investment trusts have corrected
meaningfully, and now yield 5% to 6%. They aren't terrific investments
because property prices could fall. But if you have a negative view of
the world, and you think trade will contract, property prices will fall,
and the yield on the 10-year Treasury will drop, a REIT like Hutchison
is a relatively attractive investment.
...
Faber: The
outlook for property in Asia isn't bad because a lot of Europeans
realize they will need to leave Europe for tax reasons. They can live in
Singapore and be taxed at a much lower rate. Even if China grows by
only 3% or 4%, it is better than Europe. People are moving up the
economic ladder in Asia and into the middle class.
Are you bullish on India?
Faber:
I am on the board of the oldest India fund [the India Capital fund].
The macroeconomic outlook for India isn't good, but an election is
coming, and the market always rallies into elections. The leading
candidate is pro-business. He is speaking before huge crowds.
In
dollar terms, the Indian market is still down about 40% from the peak,
because the currency has weakened. In the 1970s, stock market indexes
performed poorly and stock-picking came to the fore. Asia could be like
that now. It is a huge region, and you have to invest by company. Some
Indian companies will do well, and others poorly. Some people made 40%
on their investments in China last year, but the benchmark index did
poorly.
I like Vietnam. The economy has had its troubles, and
the market has seen a big decline. I want you to visualize Vietnam.
[Stands up, walks to a nearby wall, and begins to draw a map of Vietnam
with his hands.] Here's Saigon, or Ho Chi Minh City, the border with
China, and the Mekong River. And here in the middle, on the coast, is Da
Nang.
...
Faber: I recommend shorting the Turkish lira.
I had an experience in Turkey that led me to believe that some families
are above the law. When I see that in an emerging economy, it makes me
careful about investing.
Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
