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Marc Faber Macro Views and Investments. US Bonds, Currencies and Gold Miners
Submitted by Octafinance.com
Special thanks to Dr. Marc Faber for giving us permission to publish excerpts from his May Gloom Boom & Doom Report. To read Marc Faber’s report.
US Treasuries: Contrarian Bet Against Market Consensus
In May’s Gloom Boom & Doom report, Marc Faber starts the market observations part of the report with a chart and analysis of the latest Barron’s Big Money Poll. In the Barron’s latest Big Money poll a record 50% of respondents see themselves as NEUTRAL the market. This is the highest since 2005. 45% call themselves bulls and 5% bears. Nonetheless, when asked whether they were bullish or bearish about different asset classes, a different picture emerges. An overwhelming 82% of Big Money Managers were bullish about U.S. Stocks compared to the just 18% who were bearish:
Dr. Faber stated: “There is nothing unusual about the fact that Big Money Managers are bullish about stocks (83% of them are bullish about European stocks), but what is really remarkable is that only 12% of them are positive about US Treasuries (88% are bearish).
Marc Faber Still Long Some US Treasuries
Even though Marc Faber sees crystal clear that sometime in the future interest rates will be much higher, he doesn’t believe the current market consensus is thinking critical enough and will be right about interest rates rising. He said:
“Just remember how many experts lost moneyshorting JGBs in the last few years.”
So from a contrarian point of view, stocks are a sell and bonds are a buy. This is especially true if big money poll predictions are usually wrong about bonds and that’s exactly the case, Marc shares:
“Professional Forecasters have consistently failed to forecast the future yield on Treasury Notes accurately”
As seen on the graph, in the last 10 years, professional forecasters are as wrong as they could be and we can hardly even rank them professionals judging by the chart. Today, the situation is the same, they again forecast rising interest rates. Of course, Marc Faber notes that it’s not rational for central banks and investors to buy bonds now, when the yields are low and states that the right time to buy was in the 80s, when interest rates were high, but one should be careful as it’s hard to call bull/bear market ends, same as it was with the Japanese bond market.
Marc Faber Not Sure Whether to Trust USD Strength
Marc Faber is also not sure if the USD strength is for real. If the US Dollar is to continue it’s uptrend, then why US treasuries have yields lower than Spain and Italy and many European countries, plus Japan? Currently the market consensus is that the USD will continue to go up. He also said that he was at loss to understand why the ECB is buying negative interest rate bonds. We at Octafinance, believe it’s a pure madness.
Dr. Doom Prefers Short Yen Than Long Nikkei/TOPIX. Not Short Yen or Euro Yet
Marc said:
“The only reason I am currently not shorting the Yen or the Euro is that the bullish consensus about the US dollar is extremely high.”
But he is not a USD bull. He thinks that the FED won’t rise rates this year and they will find new excuses not to tighten. The economy has also deteriorated and it’s trend is not healthy enough. He wouldn’t even rule out a new QE program by the FED in case the economy slows down more.
He also touched on Japan’s experiment and noted that BOJ’s balance sheet is exploding to the upside and outperforming other central banks. He feels the yen will be sacrificed during this Abenomic’s experiment.
Mining Companies The Only Asset Class With Significant Upside Potential: Gold Miner ETF (NYSEARCA:GDX)
According to him, one should always hold diverse portfolio of assets such as: properties, equities, bonds, precious metals. But today, Marc Faber sees mining companies as the only asset class with very big upside potential. He also noted that mining stocks such as Newmong, Barrick are acting well and their price action probably reveal something. Even though he prefers holding physical precious metals, he recognizes the probable upside potential of mining stocks – gold miners etf (NYSEARCA:GDX).
Gold Miner ETF (NYSEARCA:GDX) Price Chart
Source: Octafinance Interpretations + Rightedgesystems
We at Octafinance, believe that if GDX breaks the $23.5 per share barrier, this will be a valid 1-2-3 reversal pattern as per Victor Sperandeo‘s terms and the triangle will be for sure resolved to the upside. This will be a good risk-reward opportunity to trade gold miners, with a stop below the breakout bar’s low.
Asia’s Start Performers and USA Equities Bull Market Red Flags
At the end of the Gloom Boom & Doom report, Marc also notes that even though investors believe that US equities are the only game in town, the S&P Index is up less than 3% so far in 2015, while most European markets are up by between 5% and 12%, Asian markets and especially the Shanghai and Shenzhen have been the star performers with 30%+ returns. He is worried that margin debt in the USA has reached new highs and the breadth is also deteriorating. At the same time the equity flows couldn’t bring an up-rise and have broken their correlation with the market. All this doesn’t look good for the future health of the US equities bull market.
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I would suggest that a discussion about whether the US$ will continue to be a strong(er) currency than others is almost entirely predicated on it being a less bad currency than the Euro. The fiddling of the FED has probably had much less to do with the rise in the US$ than the comparitive difficulties in the Euro and the Yen. All of the talk about the US$ cratering and the FED being forced to instantly jack up rates is premised upon the perception of the dollar being less odious. Were the European situation to greatly improve then I think that the US$ would weaken accordingly.
What could be shocking to the US$? Were there to be a Grexit, which I doubt, then maybe the US$ will advance and this will be problematic for US exports. On the other hand, if sometime this year Greece makes some sort of peace with Germany (read: the Eurozone), then perhaps the US$ will start its decline to where it should have been all along. I also think that the negative talk about the US economy is over done. There is no country in the world that can compete against the American start ups, venture capitalists and small business entreprenuers. If too many Americans are working at WalMart or McDonalds then they chose the wrong avenue to improving their standard of living. I'm not suggesting that choosing a new path is without costs and challenges.
I think it is also pretty clear why the Swiss are pusing negative interest rates. If they allow simple market forces to invest in their currency, then it would take off like a rocket and overnight all Swiss products would be impossibly too expensive. So, they take to shooting themselves in the foot to save over valuation. It won't last but it has its logic.
Yes.
I still blame it on the Euro. Today, "almost everyone" has a calculator on his phone, and instant access to the internet, and can therefore compute the price of anything in any currency. Having one currency, the Euro, is simply not necessary, and the Euro, and the ability it created to overspend, seems to have been the drug the PIIGS started on and got hooked on and dragged the whole EU down with. (Although I'm sure it's more complicated than that, somehow.)
Perhaps one result may be that European stocks may do okay, since Europe doesn't seem to have a big Corporate Bond market, but uses Government Bonds more, and European Government Bonds may do poorly, since they pay little or nothing. Where can Europeans put their savings so that those savings will keep up with inflation? Stocks? Maybe, bullish for ALL stocks all over the world, and maybe, that is one reason stock markets keep on going up.
And, yes, the USA does indeed still appear to offer a less-regulated and therefore better environment for entrepreneurship. (For example, Elon Musk, who is apparently a "mad scientist dreamer inventor" (like Steve Jobs?) (and whom I admire for being one) chose to operate in the USA.) Things like that make a difference - ultimately for the good, IMHO. We humans are merely technologists, and the system which supports technology best, IMHO, will compete best and survive best.
I am disappointed that, on ZH, which I think is "anti" Neokeynesian, and therefore "pro" Austrian economics, every time Austrian economist Dr. Mark Faber appears, he is ridiculed. :-(
its a matter of whether the central bankers have the will and the resources to reward investors bullish sentiment. thank goodness fund managers no longer have to try and figure out what the economy is doing, just wait for an email from bernanke. the goldilocks economy, no, the santa claus economy perhaps
I like Marc Faber. He is an Austrian economist, and I think there is a lot of common sense in the things he writes and says.
Yet more words, another delivery of noncommittal BS laced with subjunctives and conditionals.
"The investment advisor with the perfect record will fail as soon as you act on his recommendations"
-Harry Browne
so wake up and check the polls and place counter bets. ok, thanks marc...
That's generally a good move.
dollar WILL be devalued(qe4) as ongoing policy as it is the only tool left in the fed toolbox, so therefore dollar denominated assests w/o counterparty and unmanipulatable are the best bets. re, guns, ammo, ect...
anything from a tree or digital sucks donkey dick imo...
The dollar will do SOMETHING, but likely it will be a complete surprise to the 'experts'......
So a dollar denominated sset priced currently at $100 rises in price to $200 while the dollar itself is devalued by 50%.
Is that a buy or a sell?
"Welcome Mr. Powers to my underground lair....."
What a creepy looking place; like some dungeon...first impression.
I think it's in Thailand.
Yeah, I would've had some racks and chains at least.