Marc Faber Previews Q2, Is Long Japan, Cautious The US And Gold, And Sees A 5-10% Increase In Inflation

Tyler Durden's picture

Mark Faber was on Bloomberg TV earlier, presenting his latest outlook on markets and the economy, but first he summarizes 2011's first quarter which as repeatedly observed here before has so far been a mirror image of 2012, with the only different that while it ran up on 2010's QE2 back then, now it has surged on the transitory flow (not stock) impact of two back to back $1.3 trillion LTROs. "I think that if you look back at a year ago we made a peak of 1370 on S&P on May 4 and then dropped sharply to 1074 on October 4. Then we recaptured the lows in November and December. Since then, the first quarter has been very powerful and has surprised investors because of its strong performance. And I think now the expectations are very high. The market is no longer oversold the way it was in December. And everybody thinks that the race is on, go along with equities, the hedge funds have positioned themselves on the long side and optimism is high. I would be very careful at this stage." As for his outlook, he is "reluctant to short" in a money-printing environment, believes that Japan will provide the best equity futures returns (more easing from the BOJ appears imminent), is confident margins will roll over (as they already have) on the back of record for this time of year input costs, and thus thinks earnings will disappoint, sees inflation running 5-10% more than a year earlier, and is still accumulating gold every month. Overall, mostly as expected from the pony-tailed one.

Full interview:

And key selections:

Faber on whether he's finding more shorts in the equity market:

"In a money-printing environment I'm reluctant to short. But say whereas I recommended investors to increase their positions last October, November, December, now I think that if people are overweight in equities they should reduce positions somewhat…maybe cash. The U.S. dollar is desirable at the present time. And we have to say one thing. The market consists of thousands of stocks and the market consists of many different stock markets globally. The S&P has done exceptionally well relative to, say, emerging economy stock markets, most of which are still lower than they were in 2011. So, if you look at the advance-decline line of all the share markets in the world, then it is definitely being deteriorating. And I happen to believe that money printing will continue and I would probably buy financial shares and I believe that the Japanese market may outperform all the other markets against all expectations in 2012."

On saying that earnings will deteriorate and profit margins will shrink:

"First, I think there are some cost pressures creeping in terms of rising raw material costs, especially energy, and the problem with, say, a QE3 would be that you are doing it in an environment of very elevated oil prices. So, maybe the energy prices would go up more and squeeze the margins of some corporations. And certainly squeeze the consumer. And my sense is that the economy has bottomed out but is far from robust because the typical household is being squeezed by higher cost of living increases. There are various measurements. You can measure the CPI. It is rising by less than 3%. Everywhere I look I see households essentially paying between 5% to 10% more for goods and services than a year ago."

On whether Q2 will be as strong as Q1 for investors:

"I think that if you look back at a year ago we made a peak of 1370 on S&P on May 4 and then dropped sharply to 1074 on October 4. Then we recaptured the lows in November and December. Since then, the first quarter has been very powerful and has surprised investors because of its strong performance. And I think now the expectations are very high. The market is no longer oversold the way it was in December. And everybody thinks that the race is on, go along with equities, the hedge funds have positioned themselves on the long side and optimism is high. I would be very careful at this stage."

On why investors should have caution:

"Basically I think that earnings may begin to disappoint. That corporate profit margins could deteriorate. And I think we still have a lot of issues. Don't forget we have QE1, QE2 and Operation Twist. I think in order to really hold asset prices across the board much more QE3 would have to be gigantic. I'm not ruling out that stocks can continue to go up but I doubt they will go up at the same rate as the first quarter. And if you look at the technical under underpinnings of the market, they have deteriorated. The list of new highs is deteriorating. The short positions are way down. And we have an overbought condition in the market if we measure the number of stocks above the 50-day and 200-day moving average. So, generally I would say maybe April is traditionally still a month of seasonable strength but somewhere in the next six months I think you can buy the whole market much cheaper."

On QE3 having to be "enormous":

"It would have to be very significant to boost all asset prices including homes, stocks, bonds and commodities…Much larger [than QE1 and QE2]."

On gold:

"As you know, I have been very positive about gold and I still accumulate gold every month. But I think that we had an intermediate peak at $1921 on September 6 of last year. Then we dropped sharply to $1,522 an ounce on December 29, 2011. Since then we've had a feeble recovery. I think that the correction period is not yet over. I'm not selling my gold because I don't trust governments and I don't trust the Federal Reserve, nor would I trust the ECB or other money traders in the world. They are all going to print money. I still recommend to hold gold."

On bad returns for gold in Q1:

"Yes, that's correct. But the returns have been very good since 1999 and year over year I think gold is still up 12%…I think that gold is in a correction period and we had an intermediate peak on September 6, 2011. And I always advise don't put all your money into gold because it doesn't have any cash flow. So you are really dependent on the price appreciation. That is different from owning, say, equities that have a dividend yield of 5%, which I can find in Asia."

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CPL's picture

What part of Japan is he long?

 

The cancer treatment centers?

Oh regional Indian's picture

Seriously CPL. Anyone wanting to carry so much currency risk? And Japan? The yen need to Strengthen Massively and Weaken massively to save Japan.

End of story.

ori

/the-curse-of-free-energy/

theXman's picture

What a stupid comment by the host that gold investment has been losing in Q1! Is that how far her eyesight is, one quarter? Was she even aware that gold investment had been winning since 1 year, 3 years, 5 years, and a decade ago?

WestVillageIdiot's picture

From what I can tell an ounce of gold on January 1st is still an ounce of gold on April 2nd. 

The Big Ching-aso's picture

 

 

As a graduate of Faber College, going thru life in Thailand fat, drunk and stupid has its pluses.

tdogg's picture

why is it every time i hear Faber i want to drink scotch & chase tail.

Spitzer's picture

ah haha, good point.

seriously.

The dollar has the same issue tho. The Euro is actually the only one in a livable spot

WestVillageIdiot's picture

All of them have black spots on the x-ray. 

CvlDobd's picture

FRCOY is expanding into the US. Good,cheap, functional clothing.

Rubbish's picture

I call my slave owner: Cocksucker

Slaveowner says: That's why I trust you !

The Big Ching-aso's picture

 

 

"What part of Japan is he long?"

 I think with Faber he's most definitely long on Geishas.

Jack Sheet's picture

How about this bastion of Japanese corporate governance?

http://www.nytimes.com/2012/02/17/business/global/7-arrested-in-olympus-...

and this was only one case that was conicidentally exposed - wouldn't touch Japanese equities with a bargepole

PontifexMaximus's picture

No news are good news!

Bansters-in-my- feces's picture

So he recommends to hold gold,but not to buy gold.

He says he buys every month,so why would he not recommend to buy to others?

Ad what fuck with the gold is in a correction thing?

He means a Federal Reserve and Primary dealer correction....right?

LowProfile's picture

 

On gold:

"As you know, I have been very positive about gold and I still accumulate gold every month. But I think that we had an intermediate peak at $1921 on September 6 of last year. Then we dropped sharply to $1,522 an ounce on December 29, 2011. Since then we've had a feeble recovery. I think that the correction period is not yet over. I'm not selling my gold because I don't trust governments and I don't trust the Federal Reserve, nor would I trust the ECB or other money traders in the world. They are all going to print money. I still recommend to hold gold."

On bad returns for gold in Q1:

"Yes, that's correct. But the returns have been very good since 1999 and year over year I think gold is still up 12%…I think that gold is in a correction period and we had an intermediate peak on September 6, 2011. And I always advise don't put all your money into gold because it doesn't have any cash flow. So you are really dependent on the price appreciation. That is different from owning, say, equities that have a dividend yield of 5%, which I can find in Asia."

 

Read much?

riphowardkatz's picture

And thinks real estate in non-financial centers of southern states looks attractive and undervalued. I concur. 

SheepDog-One's picture

Better go buy some undervalued rural Mississippi real estate then, yea see how that works out for you. 

riphowardkatz's picture

Probably not a bad idea but I prefer the southwest. I like the drier climates.

If you don't agree you should for sure liquidate any real estate investments and hold on to that fiat  with both fists waiting for the day when houses are half the price (that will never happen but keep hoping, and then eventually you will be paying rent which would equate to 3 mortgage payments taken out today)

 

 

Deep79's picture

You really think it's a good inevstmnet? Unless you thik it's gonna start going up 5-10% from here, bad idea my freind. 

I think real estate is done, ya we might have hit a bottom, but i doubt that, i still think there is more to come, but i see real etstate prices flatlining

So go ahead, pay the property taxes and upkeep

 

 

WestVillageIdiot's picture

God ain't making any more god-forsaken desert wasteland. 

riphowardkatz's picture

When I look over this desert wasteland I see literally thousands of tourists coming here. I see tons of beautiful landscapes with lots of trees, I see sales tax revenues going up. I see record attendance at sporting events, I see huge influx of people from cold climates that have tons of money (Cananda)

The future looks bright and warm. 

WestVillageIdiot's picture

The H20 situation in the southwest would scare me away.  I'm funny that way.  I want to know that there will actually be water running to a house that I own. 

riphowardkatz's picture

The interesting part is I have lived in Oregon where there would seem to be unlimited amounts of water and I would be much more fearful of running out of water to my home there than in the Arizona. The constraint to good water is not water it is the ability to process water. 

Vlad Tepid's picture

Read Cadillac-Desert and get back to us.

You will not be singing the same tune.

UP Forester's picture

Good thing you don't see an influx of people from the south that have the shirt on their backs, no money, and a limited grasp of English.

You have lots of water and can live without power, too, eh?

riphowardkatz's picture

Most of the illegals are now moving to California where they are welcomed with open arms. 

In addition immigrants have always been a vital part of any healthy economy. The legal immigrants that choose Arizona are welcomed with open arms and are  an important part of every aspect of the growth and development this area has experienced. 

There is a lots of water in most parts of Arizona. In fact so much that Arizona  sells it to California and Nevada.  Though some forsee a water shortage there is still tons of ability for resuse, cutting back  and water banking (storing water in underground aquifers) Phoenix is already a leader in water conservation and is using less water now than they did 10 years ago. The resuse infrastucture is much more developed and people are moving away from lawns to xeriscaping. 

Power is very abundant (coal, natural gas and solar) and there are miles and miles of area for solar farms to develop so from what I can see power isn't really an issue.

 

Blankenstein's picture

"There is a lots of water in most parts of Arizona."

Where is all this water you speak of in this desert climate?

riphowardkatz's picture

in the mountains in snow pack, in under ground aquifers and in trucks/trains shipping bottled water here.

AustriAnnie's picture

Arizona obtains water by depleting aquifers.  This is a problem in other regions as well.  Chris Martenson had an interview in Nov or Dec on this topic, I was blown away by some of the data presented.  (podcast available on itunes for free or on youtube here: http://www.youtube.com/watch?v=E0qSr8TExmc)

I think we will see government overseeing the use of water more so in the future (as they have regulated oil).

AustriAnnie's picture

Another problem, water is used in energy production, even solar.

Solar projects in the southwest are running into water troubles:

http://www.nytimes.com/2009/09/30/business/energy-environment/30water.ht...

riphowardkatz's picture

There are no good investments in this world. That is a fact. There are only speculations from here on out (or until the ultimate reset crash)

Yes I think GOOD real estate is a very good speculation. It is  a short of the dollar. There are  are only so many good real estate locations and 2-8x the number of dollars. 

Even with huge inflation that money filters out into the economy. Some people will be getting paid more in nominal terms.

Rents are equalling 30 year motgages in lots of places.

Housing is becoming cheap in gold terms.

Taxes may be going up and real estate offers a shelter.

People are looking for income and will think (right or wrong) that real estate is the place to find some. 

WestVillageIdiot's picture

Real estate can come with big rewards but it comes with huge risks.  A real estate investment must be fed every month.  It pauses for no man's cashflow problems.  It is high-maintenance and you need to be on top of it constantly. 

That just isn't for me.  Good luck to you.  You may be on to something but as Don Corleone said, "your business is a little too dangerous", especially when society no longer feels they need to pay their obligations. 

AustriAnnie's picture

Additional risk of real estate comes from the fact that you have no option to leave a location if it goes to hell around you.  It only takes a few weeks for any kind of civil unrest to destroy entire cities.  (See pics of Spain/Greece and the trash/vandalism/crime that is visible after only 7 days of protest).  Even without severe unrest, groups of people are renting houses via Section 8 or HUD, and formerly nice neighborhoods are becoming slums.  Its happening already. 

You can buy the house, but you can't control who moves in next door.  The value of your investment is exposed to a lot of risk this way.

If you own a home you better be willing to walk away from it in the future if necessary. 

 

AustriAnnie's picture

"Taxes may be going up and real estate offers a shelter"

False.  Property owners are completely vulnerable to changes in property taxes (one of the first taxes that will be raised, most likely).  Increased cost of utilities (water, sewer, etc) are likely coming as well, and property owners take that hit directly.  

Tax laws change quickly.  Right now there are exemptions for energy-saving renovations, etc.  But when energy upgrades become mandatory, that isn't much different than a direct tax. Other tax exemptions may be eliminated.  The recent trend is to punish those who save and pay off their own mortgage, and to subsidize those who don't.  Tax law is a favorite way to twist favor to one party in expense to another.

 

metaforge's picture

Renters are just as vulnerable when their landlords raise the rent to compensate for said taxes.  Ya gotta live somewhere...

AustriAnnie's picture

Yet, renters have the flexibility to move, change plans, because they are locked into a 1 yr contract not a 30 year contract.  (Plus, when you rent its pretty easy to hide income from taxation.  Many work for cash and pay rent in cash, one of the most popular forms of tax evasion)

Regulations which make it harder for landlords to pass costs onto renters and/or rent control are likely to occur.  This is often done at the state level, and renters have the option to move across state lines.

All I'm saying is, someone shouldn't rent without having a good plan for when rents go up.  And someone shouldn't buy without a good plan for when property taxes go up and/or regulations increase the burden of property ownership.  In a country where wealth is quickly being redistributed, I'm not sure I want wealth that is too visible and which I cannot hide or take with me.

AldousHuxley's picture

real estate investment are like gold....you never get rich unless you leverage and buy multiple homes.

 

on the long haul, real estate = US Treasury = inflation

 

the utility of good home doesn't go up or down due to increase in perceived value. All you are seeing is inflation eroding your wage not any real increase in real estate.

 

while you believe your home value went up, everything else goes up too and real limited resource like top education, value of political position, etc. goes up multiple times of your shitty shack value.

 

Sorry, real estate is for the big banksters.

PeterPansDad's picture

Totally unrelated, nice username.  We need to find another good one handed economist.

SheepDog-One's picture

Well riphoward I was far ahead of the curve in selling real estate in 2003 and 2004....I saw that top coming a mile away and since my family are land developers, I did all I could to sell all we had, much to the hemming and hawing of them who said 'real estate only goes up' so well long story short we sold the top. Im not much into calling bottoms, real estate is still screwed, because the economy is screwed, and I dont care how much frosting is put on it its still a turd because policy is insane.

DosZap's picture

And thinks real estate in non-financial centers of southern states looks attractive and undervalued. I concur.

More room yet to drop, but some bargains if you really steal them.

That said, anyone investing in real estate, or farmland, is setting themselves up for a sad mistake.

The recent EO's, have put a HEAVY risk into owning any land.........and, almost anything else for that matter.(that's not easily hidden.)

lolmao500's picture

Long Japan?? He's high as a kite! A radioactive kite.

riphowardkatz's picture

Japan has increased money supply relatively little compared to the west.

http://blogs-images.forbes.com/michaelpollaro/files/2012/03/Slide13-e1333057571772.gif

They are going to have to start increasing the money supply significantly and have started doing so. This will most likely lead to a boom of course a bust will follow but that is life in the 21st century.

And your hyperbole about the  country being radioactive is neither clever nor accurate.

 

crawldaddy's picture

actually its pretty accurate.  Northern Japan is just a cancer cluster in waiting at this point.

riphowardkatz's picture

why is it different than chernobyl, seemed like that was the end of the world until it wasn't. Honest question I am really not that up to speed on its effects.

WestVillageIdiot's picture

I think it is Japan's turn at the QE round-robin now that Benny has taken his turn and the ECB has done their LTRO.  it doesn't matter who prints just so somebody prints. 

Spitzer's picture

Yeah idoit.

What are you buying ? The DOW of course because its close to all time highs

SheepDog-One's picture

I dont always buy equities....but when I do....I buy zee top! Stay thirsty my friends...'

WestVillageIdiot's picture

When Sheepdog-One punches you in the face you have an overwhhelming urge to thank him. 

SheepDog-One's picture

Now how could somebody not like that post? I thought it was pretty funny.