Legendary investor Marc Faber is out with his monthly report which discusses the US economy, QE 2, equity markets, China's property sector, and the EU debt crisis. Here are a few highlights:
1. Stock market outlook is uncertain. Faber is less confident that markets will fall to 850-900 because of the inevitable money printing (aka QE 2), which will boost asset prices. Possible trading range developing with 1040 as the bottom and 1170 as the top for the S&P 500. Even so he would be reducing equity exposure on any stock market strength.
2. Euro is likely to bounce around erratically between 1.25 and 1.35. Faber hates the dollar and euro but likes undervalued Asian currencies.
3. If you have to buy stocks make it Asian equities and REIT's in Thailand, Singapore, and Malaysia. They have high yields and are attractive compared to 3% 10 year treasuries. Asian economies will continue to grow at a healthy clip even with weakness in the US and Europe, which makes them good investments.
4. China's economy will continue to do grow even if the property market declines sharply. The growing Chinese middle class will support increased domestic consumption. Wages in China have gone up giving hundreds of millions of people increased purchasing power.
5. US municipal debt will likely become a major problem in the future. As of the 1st quarter of 2010 there is an estimated $2.8 trillion in outstanding municipal debt, which can never be repaid and will require a federal bailout. Another issue is state and local government pension plans, which are severely underfunded.
6. Gold is a buy after its seasonal bottom usually in September. Long term trend is up and as long as Bernanke is Fed Chairman, gold will do well.
7. Likes agricultural commodities and related stocks (but says avoid commodity ETF's because of the roll). In particular Faber likes wheat, rice, and soybeans. He also likes the fertilizer and seed stocks.
8. Faber expects rising agricultural prices will lead to civil unrest and violence in some countries.
Black Swan Insights