Friday, June 5, 2009

Marc Faber's Latest Advice

It's always fun to read "Dr Doom" Marc Faber's investment thoughts, although it is not always clear if he is being serious or just trying to attract attention with extremely bearish views. Witness his recent Bloomberg interview in which he predicted that the US is doomed to hyperinflation on the order of Zimbabwe's.

Faber's most recent subscriber newsletter avoids mentioning the hyperinflationary extremes of Zimbabwe, but it is still negative on the US in the long term. In a story on, blogger Gwen Robinson summarized a few points from Faber's recent subscription newsletter.

After the recent rapid advance of stocks worlwide, Fabers sees them in the short term as either moving sideways or mildly correcting, although he does not expect the downside in the advanced markets to exceed the lows of last March, or the lows in emerging markets to exceed the lows of late last year. Although he likes neither the US dollar nor Treasury bonds long-term, in the short-term Faber sees both as oversold and due for a rebound. Both should rebound as safe-haven plays if the stock market corrects in the near term.

Faber hedged his short-term views of stocks, however. He cited insider selling and the net issuance of shares as reasons to avoid stocks right now, but because so many money managers have missed the spring stock rally, Faber believes that they “could lose their patience and their sudden rush into long positions could lead to another stock market upside explosion.”

Faber's longer-term views are less equivocal. Because he still sees the US fiscal deficit as posing a risk of accelerating inflation in the next few years, he advises as follows:

  1. Shift from US dollars into Canadian and Asian currencies.

  2. Keep accumulating precious metals.

  3. Move out of US government bonds in favor of commodities, commodity-related companies, and hard assets in general.
This viewpoint (declining US, bond bear) is becoming more prevalent these days. You might think of that as a contrary indicator, but just because it is becoming more prevalent, doesn't mean it is wrong. Faber has been dismissed as "Dr Doom", but sometimes a bearish strategy is an appropriate stance. Is it a prudent course of action now, given the facts available to us?