Equity Markets--Faber is still bearish on the markets in the very short-term. He thinks QE 2 will disappoint investors, which will precipitate a sell-off in equity markets. In particular, Faber mentions the high level of bullishness in the recent AAII sentiment Survey as a signal of overly-optimistic sentiment among investors. However, the S&P 500 will not break below 1040 because that would encourage the Fed to print more money to prop up prices. The point is that a decline in the market should be bought. For the first time Faber mentions the possibility of a "crack-up boom" in the US and world economy. Money printing will provide a temporary boost to the economy which would be very bullish for stocks and commodities. The "crack-up boom" scenario could last for between 6 months to a year.
Commodities--While they may be vulnerable in the short-term, commodities should be bought on any weakness. In particular, agricultural commodities (wheat, corn, etc) and related stocks like the fertilizers will remain attractive. Do not purchase agricultural ETFs that own commodity futures because you will lose on the monthly roll.
Gold & Silver--All investors should own some gold and silver. Right now, Faber thinks silver could provide a better return than gold and could reach $30. This would be especially true under a crack-up doom scenario where industrial metals like silver and palladium would soar because of strong demand. The bull market in precious metals will continue as long as the US has negative real interest rates. Finally, Faber likes gold and silver stocks. Previously, he mentioned Centamin Egypt as a good gold play.
Bonds--Do not purchase US government bonds. Rates are incredibly low, and any positive economic news would negatively impact bond prices. A possible crack-up boom would severely hurt bond investors as money moves out of bonds and in to equities.
Currencies--In the short-run, the dollar could rally from very oversold levels. This would likely coincide with a market sell-off. But this dollar strength would only be temporary. Regarding other currencies, Faber thinks the Yen and Franc could decline because they are very overbought. This makes him bullish on Japanese and Swiss equities, which should do well with weaker currencies.
There you have it: Faber's outlook for November. Good luck trading!
Black Swan Insights
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