Will Dr. Marc Faber be wrong again this autumn?
Posted on 23 September 2009 with no comments from readers
Apologies to my old friend and colleague Dr. Marc Faber but not all his calls are right. Last autumn he recommended buying US stocks just as they started a plunge that ended with the S&P at 666, the devil’s bottom in March.
Today listeners to Bloomberg heard a repeat of the same optimism from the editor and publisher of the Gloom, Boom & Doom Report. His logic is a repeat of last autumn.
‘Where there is inflation in the system as defined by money supply growth and credit growth, you have currency weakness, he said. ‘Stocks can easily go higher. If you print the money, they can go anywhere.’
Nice theory but wrong
It is a nice theory but then it did not prove correct last year, and I checked in the GBD report for the reference and there it is in print. Dr. Faber seems obsessed by Ben Bernanke as a ‘money printer at the Fed’ and foresees hyperinflation like Weimar Germany where stocks soared ever higher as the economy collapsed.
In the Gloom, Boom & Doom Report last September he said stocks were the best investment for US investors just as the market headed for a crash comparable in many eyes to 1929.
The rally since March has also followed the course of the rally seen in 1930 both in percentage strength and duration. And there has not been a single occasion in 100 years that such a rally has not ended with a dramatic correction.
Is it really so different this time? Yes, the US government has vigorously pumped money into the economy, and the Chinese have done even better.
But is all this state spending going to compensate for the collapse of trade, consumer spending and the global private sector including the banks? It is a hole of 1930’s dimensions, actually bigger, and real damage has been done to the real economy.
Now tell me why stocks should be valued so highly in these circumstances that are a disaster for business profits now and in the future?
Bubble trouble again
This is once again such an obvious bubble waiting to pop. And yes that is what this website said a year ago.
The disconnection between the financial markets and the real world has never been bigger, not even last autumn.
Surely there is also a limit to how much money that can be injected into the system before it begins to backfire in terms of devaluation and inflation? And with interest rates virtually at zero there is no further room to lower rates again.
So once again I heartily disagree on the autumn outlook with Dr. Marc Faber who seems to have given up on business cycles and thinks this time is different. He is a great student of history and ought to know that we are doomed to repeat the errors of the past.
On one point I would certainly concur and that is that gold will outperform stocks over the next year.
no Comments posted by readers:
Since you pretty much agreed with everything he has said for the last year and were proven wrong I find it interesting that will now disagree with him.
Ed Note: Have a look back at last September and you will see this is just not the case.
Hello Sir,
I am certainly not a regular listener of Marc Faber’s imprecative predictions. But well, i do pay attention to the calls he makes on some of the regular shows.
And I did not catch the message you did from his recent interview at Bloomberg. From which I picked he believed that volatility would reach impressive levels soon. And he refused to predict the short and medium term.
http://immobilienblasen.blogspot.com/2009/09/mark-faber-is-still-making-lot-of-sense.html
I did not hear the same MF as you did. I can definitely remember him calling the current rallye in March 09, calling these equity markets “oversold” at that time.
I do not remember him calling for an upswing in last October. Can you get us specific predictions he made at that time? Was that through his subscription-based letter?
Ed Note: Yes I also checked back to the GBDR last September and I am afraid the prediction is very clearly stated. Bloomberg also restated this position in its article following the interview and it was not corrected – no need because that was the correct position.
Peter
I have been reading your website on a daily basis now for just over a year. I have enjoyed very much most of your commentary and the reasoning behind it. Below is my take on were I see things in the short to medium term.
The stockmarket may well take a downward turn this Autumn yet it will not alter the path those that practise the ‘Dark Arts’ in the City of London and by the FED. As far as my gut instinct is telling me they will continue injecting money into the system and keep on buying each others debt just to keep the game going. They will keep interest rates artificially low for as long as they like. This in turn I believe will lead to a crack up boom and a dash to assets; oil, gas, gold, silver land and property. Already here in London, property values have recovered nearly all of their losses, and in some prime areas are now higher than in 2007. So yes there may be some corrections along the way but I am in the bullish camp for the next three years. Then all will be reveallled, with rampant inflation, currency collapse, social unrest, maybe a war or two to distract the masses then a reset of the whole system. The prudent/savers those holding cash will be wiped out. They will just change the rules with the introduction of a new currency. As simple as switching on and off a light.
I asked an old boy recently when did he consider would be the end to this recession. His answer was simple: ‘when the RICH (elite) get their money back at your expense.’
Ed Note: don’t you think the current rally has already repaid the rich at the expense of saddling global governments with massive debts – your old boy is right but this is history.
Peter:
I firmly believe that you are correct, regarding the long term market outlook. However, with all due respect to you and your website, I believe your critique of Faber is a bit harsh.
Rationale:
- The FED IS the market. They have and will continue to pump a massive amount of freshly printed USD into the US stock market (they also have shorted the fraudulent COMEX gold market, to the tune of over 30 million oz, in an effort to stabilize the USD)
- The “short term” signals (e.g. strong FED hand, the advance/decline line, the advance/ decline volume line, the Leading Economic Indicators, S&P 200 day MA, etc.) are all pointing to a further rally
Ask any Wall St. Trader. They’ll tell you that the FED’s “heavy hand” is there, EVERY DAY!
There’s an old saying among traders: “never fight with the FED” … and to that I’d add “never fight with this particular FED” because they will continue to run the printing presses night & day to achieve what they “believe” are they’re objectives.
One More Thing:
One of the FED’s primary objectives, going into the last quarter of 2009, is to “keep the US stock market from falling”; they believe that if they do this, it will make Americans “feel good.” Given this, they will continue to pump freshly printed USD into the stock and bond markets, through 31 Dec ‘09.
Bottom Line:
I believe that the US stock market will test its prior low of S&P 666, perhaps early next year. At that point, there’s nothing that the FED (with JPM and GS help!) will be able to do to about it. When they intervene at that point, it will be analogous to watching them shovel sand against an incoming tide.
P.S. Ironically, given what the Obama administration & the FED have done, the US economic situation is getting worse, and they have not solved any of the systemic economic problems. As a direct result, they, together with their merry little elves (JPM, GS, Citi, HSBC) will soon have to “eat their words” regarding green shoots, economic recovery, etc. They will soon look like the fools that they truly are.
Ed Note: Yes your scenario has legs – MF is repeating the same thing he said last year only to be proven badly wrong by the stock market crash, is it harsh to remember this or highly relevant to judging an immediate market call?
Global stocks fell yesterday.
Plenty of comments on this one!
I really like Obewon comments. The fed (and their banks) own this market, for now. They can continue to debase currency for at least another 12 months pushing the consequences out 10 years+.
It’s a bit like if one of your kids was critically ill and you needed a heap of cash to pay for treatment. You head out and sell all your stuff, get 100 credit cards, personal loans, family loans, re-finance the house then when you get really desperate you go rob a bank. You don’t give a toss about the future when your child is sick, you just go all in.