Marc Faber is out with the latest issue of his famous Gloom, Boom, and Doom Report which is always a must read for serious investors. Unlike most of the other talking heads, Faber has an excellent track record. He correctly predicted the top in the equity markets in Nov 2007 and caught the bottom in March 2009, making his subscribers a lot of money. Here is a summary of his July 2011 report:
1. Stocks--The stock market is going to rally in the short-term (July-August), but equities will not surpass their previous highs reached back on May 2. After this bounce, Faber believes the market will decline sharply to around 1100 on the SP 500 (during the September-October period). This is when the Fed will likely consider implementing QE 3 to stimulate asset prices.
2. Bonds---The rally in US Treasuries is over and investors should take profits.
3. Commodities--- Even though Dr. Copper bounced off its 200 day moving average, Faber would stay away from any commodity which is dependent on Chinese growth. The probabilities of a significant slowdown or crash in China have increased recently.
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4. Dollar--Everyone and his brother loves to hate the US dollar and expects it to decline further. While Faber despises the dollar long-term, he thinks it is attractive compared to the Euro. In fact, Faber recommends investors short EUR/USD as the situation in Europe is likely to deteriorate. The recent bounce in EUR/USD provides a good entry to initiate a short position.
5. Gold---As Faber mentioned last month, gold is undergoing a short-term correction, which is natural during a bull market. The correction could take gold to as low as $1400. This would represent an excellent buying opportunity for investors. To counter the anti-gold crowd, Faber emphatically states that gold has not reached a major top and is likely to trend higher later this year.
6. Money Market Funds----Faber is increasingly concerned about holding money market funds because of their exposure to European banks (estimated at around $800 billion). This is why the 1 month T-Bill recently went negative. Faber says that he plans to reduce his exposure to money market funds.
7. Australian Real Estate--If you have been lucky enough to have owned Australian real estate over the last few years, you may want to take profits. The Australian housing market is in a bubble and is very susceptible to a housing crash. The likely catalyst for the sharp decline would be a major slowdown in China, which would depress demand for commodities.
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