Marc Faber Expects Market Sell Off On QE2 Announcement

Tyler Durden's picture

With vacuum tubes expecting QE next Wednesday to come anywhere between $500 billion a $10 trillion, it falls upon Marc Faber to naturally take the other side of the bet, who, in this interview with Margaret Brennan (sadly without Mr. T by his side), tells the impeccably coiffed Bloomberg anchor that instead of inciting the mother of all flash dashes and hitting the BlackRock 12 month target of Dow 36,000, Faber instead anticipates that the Fed decision "could disappoint investors and may prompt a correction in US stocks." In response to Margaret's question if size does in fact matter, Faber responds that anything under a trillion will "disappoint." And with Goldman now throwing out bogeys as high as $2-4 trillion, it is almost inevitable that a sell the news type day will be virtual certainty on mid-term election day. "The markets are stretched: weak dollar, strong PMs and strong equities - I think a correction is overdue. But I wouldn't think that a bear market is around the corner." In fact the opposite: "Maybe we will have a crack up boom in stocks and commodities like between the end of 1999 and March 2000 when the markets went up very strongly."

Faber is once again mostly bearish on bonds (and cash), due to his long-running expectation that inflation, whether modest or hyper, will make all fixed paper investments lose value very fast. As for specific equity sectors Faber likes, he highlights agricultural commodities and "I continue to recommend the accumulation of precious metals, whereby I think they are overdue for some kind of a correction here and then we'll get the next move probably next year and then thereafter." Lastly, Faber touches upon China sharing his latest outlook on why he is not very, shall we say, optimistic on the country. No surprise there. Elsewhere, had a very interesting perspective on why the Chinese stock market is not in a bubble while their stock market is. Time permitting, we will share our summary view from the report.

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prophet's picture

Could it be that QEII and POMO are there to counteract the deleterious effects on our stock market when the dollar rallies strongly as risk off goes into overdrive due to the commencement of Phase II of collapse.  POMO and the dollar are duking it out today.

uno's picture

you beat me to the pomo talk.  Nov 10 the fed is to release the next pomo dates, i guess it depends on the stock market selloff.

I'll continue to monitor the liquidity out there, so far it says stay and play.

mule65's picture

Selloff?  With the retail investor scared out, massive insider and hedge fund selling, who is left to sell?  Nobody.  We'll churn higher with some big short covering rallies.

prophet's picture

$xT worth somewhere.  Perhaps, pensions repositioning.  Retail outflows can increase bunches. 

But I agree, it sure does look like up from here barring any "externalities".

MachoMan's picture

QE and POMO are silver dollars sitting on the trap door that are meant to lure you into standing over it...  nothing more...  they have no possible way to move any treasuries sufficiently within their means other than to attempt to implement austerity.  Everything else is jaw boning.

gkm's picture

I tend to agree and I've thought for some time, like Faber is suggesting, that QEII will be the trigger for a stock sell.  Think about how stocks are valued.  They are essentially valued based on DCF analysis.  If the implied interest rate of the market, irregardless of the manipulated t-bill rates, rises appreciably (because of a loss of confidence possibly), then the value of future cash flows in PV terms drops and the DCF calculated value drops for stocks that aren't a 100% flow through of those things which are increasing in price (i.e. commodity stuffs).  

How do higher sugar prices benefit IBM?  They don't.  Even if a company did get some benefit the net to the bottom line will never be as much as just buying sugar outright.  So sell IBM and buy sugar or whatever.  The notional lift that the stocks are getting right now is in the DCF analysis with falling rates, but once the thinking I've outlined starts to resonate it may be possible to see a panic sell of stocks and buy of commodities across the curve.

It's important to remember that the Fed blew the bubbles that caused the Great Depression 1.0 and 2.0 even though they didn't think they were doing it.  It caused the second greatest sell off in modern history in 2008.  Then, during that sell off, the geniuses there along with the SEC decided that eliminating short selling would be helpful and of course it created a cataclysmic sell off rather than just a slow and steady melt.  They, at some point, thought that would be helpful.  All the market needs for the next big meltdown is for the geniuses there to keep on thinking and they will see it through in time.  They have my complete confidence.

HarryWanger's picture

Everyone and their brothers are expecting the market to sell off on the announcement. Now according to logic I read on this forum every day, won't just the opposite happen? 

Could it be that today and the rest of this week will be flat to bring on the "maybe it's not priced in" crowd mindset? Therefore setting up for a big upward surge on the news? 

Contrarian would take the other side of this crowded expectation of a sell off.

SheepDog-One's picture

What you mean is triple contrarian indicator it seems. 1,400 pump on the DOW due to wild hype about some massive QE2, (nevermind the fact that Bernanke has never mentioned any multi trillion QE2 ever) so that sets the stage for what exactly Harry? What will Bernanke announce, $7 trillion Q/E as the IMF said needs to happen? That will never happen, so whatever is baked in is about to get suddenly removed, that is 1,400 DOW points minimum.

frankTHE COIN's picture

A small example: in the 80s the Bonds factored in a money supply decrease of 3 billion. everyone expected this, and on the last day the mkt closed on its high around 66.28. The actual # was better than expected, it was 5 billion. The cash mkt rallied up half a point (16 ticks) and everyone was expecting the futures mkt to open sharply higher. Instead, it opened up 3 or 4 tics higher, made its high in the opening range and got lower on the day within 3 minutes of the opening. Within 10 minutes, it was below the previous day's low. This established an outside down day within 10 minutes and everybody is now caught Long. It collapsed and closed a point and a half lower and sank from there. I know this was a micro example, but the macro setup is similar." Bob Jenkins "

And remember, when David Tepper said QE2 will make everything go up the mkt skyrocketed and is still factoring in thru the govt and other buyers. You guys expect it to go higher. So the contrarian view that it will not go higher is not as big as you think. Everyone who was going to buy has bought. (there will be more POMOs). But when everyone has acted and there is no one left to buy, guess what happens.

equity_momo's picture

Ba-da-bing.  And thats how we swing trade boys and girls. 

NonAggressionPrinciple's picture

my thoughts exactly.  all the smart money that bought at lower levels needs to find a way to cash out of their positions.  this may provide the buyers to do it.  even if its not the day of the announcment, this news item presents the scenario for the big boys to sell.

TumblingDice's picture

You are quite right that logic and the markets do not mix well. However the market is overbought and there are no buts about it. QE2 is priced in with a two month 20% plus move in the NDX. Faber is right in that the announcement by the FOMC will disappoint. A big monetary intervention would anger America's trading partners.

This will be a play similar to when Turbo Timmy's stress test stunt pushed the market lower for the buyers to step in. The AUD needs a breather and it will bring the market down with it. Retail will sell the drop and the market will resume its upward trend once we go below the summer lows.

traderjoe's picture

I think the realization is creeping in that money printing does not actually create wealth and that profit margins will likely get squeezed going forward....

According to RAN Squawk (to your trading partner point):

"Chinese minister says USD issuance by US "out of control", attacking China with inflation

King_of_simpletons's picture

They are scared that their $2T will be worth $500B in 10 short years...that's their fear. Not inflation. They decided to restrict Yuan's upward move and now they have to pay the price. Both countries will not change their stance. We keep printing money and inflation keeps going up there.

Vampyroteuthis infernalis's picture

I think it is a great idea. They have a right to be afraid. F*ck China.

citationneeded's picture

Everyone and their brothers are expecting the market to sell off on the announcement.

If that were true, where is the selloff now?

HarryWanger's picture

That's my point. Maybe it won't sell off at all. Market is waiting for something from the Fed. We have everything from $500B to $4T. There is hesitancy right now on the off chance nothing happens. So IMO the market is anticipating something but not exactly sure what. If they get it, I think it rallies rather than sells.

SheepDog-One's picture

Oh right I get it now, nevermind the markets overpriced like mad, really theres only upside bias from here on out. Wow its a miracle, and we live in Candy Land.

HarryWanger's picture

Market is fairly valued with a slight richness with the S&P at 15 times based upon the stronger earnings and outlooks going forward. This is pretty much in line historically.

Markets are in an uptrend right now. There's really no reason for them to sell off. Yes, we will get pull backs but overall, when inflation is tossed in as well, there is an overwhelming upward bias.

Howard_Beale's picture

Historically only relative to the onset of the 82 bull run. P/E's were much lower for 40 years prior running 6-8. So which one is right?

Miles Kendig's picture

Harry's sense of history is contained within a 5 min chart Howard...

FEDbuster's picture

The initial Q3 GDP estimate (lie) will be released on Friday.  With everyone waiting for election results and the FED's erection results next week, GDP has been lost in the shuffle.  The growth chart from the Consumer Metrics Institute is very interesting, and negative GDP could well be the iceberg the USS Economy hits despite all the QE life boats.

TradingJoe's picture

I can hardly wait for that "big upside" so I can sell into it!

DosZap's picture

I fully expect a Melt Up, I have gone all in with what's left of my stock,MOJO's rising.

As long as the Fed is staking this dude, the only lose is to be out, IMHO.

PM's ^, and Mkt ^,the number I heard is 2 Trillion, but in small doses, they cannot afford to DUMP their WHOLE load, and it not work immediately.

Either way, get ready for a MASS mad MF John Q Public.This is what the election is about, that and Healthless Scam,and the high handed ramrod tactics they use.

MORE DEBT= American rage.

Any doubts now, we have an Raging ideolouge for a so called leader?.

He would not piss on you if you were on fire.

66Sexy's picture

hell just go to vegas and put your money on black... at least you get free drinks.

etrader's picture

We need some serious bank debt forgiveness before inflation is really off to the races.

A swift equity deflationary event would speed up debt forgiveness via QEIII

The  genie out of the bottle & she's not going back in.

SheepDog-One's picture

Hmmm whats that giant sucking sound?? Oh, I didnt mean to imply the executive washroom at Goldman Sachs...I meant the vacuum of insiders selling and 24 weeks of exits from the markets. 

Nov 3rd should be interesting indeed, as all the media whores and Wall St anal-cysts have set the stage for no less than a massive Bernanke announcement. He's got nothin, bupkis.

jus_lite_reading's picture

Either outcome, November 3rd will be a day for the history books. Insider sales continue to mount. I like to look at a company called TOLL Brothers- a company that has a fake market cap of $3 Billion- and one who's top dog has collected almost $1 BILLION in total compensation in just 5 years time- all the while, the stock has lost about 75% of its value during that same period. Fraud, lies, corruption; a house built on sand. That is Wall Street today.

DosZap's picture

Toll Bros WAS one of the Elite Homebuilders in the USA, with a 3 year backlog of UPSCALE homes, and they were selling them as fast as they could build them.

Before the Meltdown, they were a premier stock amongst the builders, and they made a fortune.


SheepDog-One's picture

Yep McMansions'R'Us may as well have been Troll Bros name.

DoChenRollingBearing's picture

Very well stated SheepDog.

The End is near.  Doom is near.  

lynnybee's picture

.... luv Dr. Faber, he's cool.  

Buttcathead's picture

who cares...  robots can sell it off and then Benny will throw more in the rabbit hole.

SheepDog-One's picture

Throw more of what in the rabbit hole, Hormel chili?

Village Idiot's picture

has anyone here ever heard the term "like throwing a hot dog down a hallway" that lol chili comment made me think of it.

schoolsout's picture

uh, yea, but that is usually said when talking about a promiscuous female

Village Idiot's picture

hot dog - chili - hole.  never mind.  good catch, though. that term is a tad bit age dated (juvenile) for this site.  some of the more "elder" commenters on this site rely on me for the more juvenile stuff. it's my contribution.

schoolsout's picture

I'm fairly young, so I don't mind a bit...

SheepDog-One's picture

Ive heard that hot dog down a hallway in reference to Ms Burnett.

Ted K's picture

I think it covers 90% of the female CNBC anchors. Probably a couple men too.

Caviar Emptor's picture

There will be disappointment for a short while, but that's the idea. The Fed has been worried about not waking the animal spirits. But just placing a put under the market isn't really news anymore and isn't cause for wild celebration. Money will still be flying out the window as fast as they can print it, supporting Korean electronics shops, Chinese parts factories and Italian tailors. As fast as they can pump, biflation will devastate the domestic economy since prices will rise while employment, incomes and housing deflate. US corporate margins will erode, just look at today.

SheepDog-One's picture

Right, it will disappoint, but only for a short while of course as endless baseless optimism is a bottomless well, magically refilling no matter what the reality of anything is. I see! Then it will be back to rally daily time, never looking back as markets surge to all time highs in destroyed USA. COOL!

Caviar Emptor's picture

Yup. If the markets were allowed to plunge it would screw the entire international brotherhood of banksters all over the world. There's more to it than just Wall Street greed. The whole ball of yarn could unravel.

LowProfile's picture

They have protective puts in place.

Minion's picture

......... from before 2008, which bankrupted the counterparties.  :D

Walter_Sobchak's picture

It's bad news either way.  I hope there is a sell-off so i can increase my PM's.  

we're entering a world of pain, dude.

66Sexy's picture

right, thats the plan. the best way to collapse the dollar is to keep food, oil, and housing cheap i.e. china.

everything else, JSP is priced out.

so we invade middle eastern countries, enourage fast food corporate compettition (its cheaper to eat @ del taco than to cook), and damage the housing market even more via cloud on title issues to discourage forclosure buyers.

its all by design.

hell, if you own gold, vote for democrats and obama.

Milestones's picture

Hell, this isn't a casino, this is the Carney runway. Knock over three bottles win a panda bear. Step right up there little lady--win yourself a prize. Hot damn, we gonna have a hot time in ole town tonite (11-2&3-10) Fuck a duck!!   Milestones