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 predicted the top in the equity markets in Nov 2007 and caught the bottom in March 2009, making his subscribers a lot of money. Let's see what he is up to in June 2011:
1. Stocks--Faber is still cautious on equities, believing that a more significant market correction is around the corner. However, shorts should beware because they are fighting the Federal Reserve. If you have to be in the market, stick to consumer staples like MO, JNJ, KO, PG, etc. For the ultimate contrarian investor, take a look at some select housing stocks (TOL,LEN, KBH), but only if you have a high risk tolerance.
2. Bonds--Likes Treasuries for a trade. Says 10 year yields could fall to 2.5% during a stock market correction. Longer-term Faber hates Treasuries and dismisses Albert Edwards call for sub 2% yields for the 10 year.
3. Commodities--Stay away from industrial commodities. Global growth is slowing, which means weaker demand and lower prices.
4. Gold--Still likes gold and recommends a gradual accumulation despite market fluctuations. Says that longer-term gold can only go higher because of negative real interest rates. Even a deflationary collapse is unlikely to hurt gold because the Fed will simply debase the dollar to get nominal prices higher. If the Fed gets it right and successfully re-inflates asset prices, then inflation will be in the double-digits, which would be bullish for gold.
5. Dollar--Any temporary bounce in the dollar (say 10-20%) would be met with more money printing by Bernanke and Co. This factor limits any sustainable gains for the dollar. In fact, the only scenario where you could see a much higher dollar would be nothing short of a worldwide financial collapse.
5. Macro--Faber says it is very hard in this environment to predict what will happen in the markets. The Fed's manipulation of asset prices has caused large distortions. However, one thing is clear: the Fed will not let the markets fall too much. This is why Faber thinks the stock market will trend higher (in nominal terms) or at least trade sideways for the forseeable future.
Black Swan Insights