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Monday, February 3, 2014

Marc Faber on the Barrons Roundtable 2014


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.

Faber Not positive on US Stocks

I am negative about U.S. stocks, and the Russell 2000 in particular. 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."

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

Buy 10 Year treasury and short Rusell 2000

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.

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

US Dollar, Singapore Dollar, Malaysian Ringgit

I bought Treasury bonds and I have a lot of cash. It is mostly in U.S. dollars. I also have Singapore dollars, and Malaysian ringgit. f

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

The Emerging Markets Aren't incredibly cheap, except for Vietnam and Iraq

The market hasn't had a correction of more than 11% since October 2011. Enthusiasm about the U.S. market reminds me of the talk I heard nine months ago in Indonesia and Thailand. Subsequently, those markets fell 35%. While it is too late to buy the U.S., it is too early to buy the emerging markets. They aren't incredibly cheap, except for Vietnam and Iraq, and capital could still flow out.

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

The problem with Mr. Obama

The problem with Mr. Obama is that you get more regulation and it's a disincentive for businessmen to hire people. You probably also get higher taxes, so in terms of the economy, he is very negative in my view. I think Mr. Obama is a disaster for business and a disaster for the United States. Not that Mr. Romney would be much better, but the Republicans understand the problem of excessive debt better than Mr. Obama, who basically doesn't care about piling up debt.

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

Marc Faber on Bill Gates and Poverty

Poverty in the world is one of the economic and social issues that have preoccupied me the most. How do we reduce or even eliminate poverty? I do not have the answers. Bill Gates in a recent letter to Wall Street Journal, which was based on his Foundation 2013 annual report, tries to find some solutions. I commend him for that even though I have serious reservations about “aid” as proposed by him. Still, the Gates Annual Report is well-worth a read (http://annualletter.gatesfoundation.org/en).

Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

MARC FABER BLOG

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