In line with our views on Europe's endgame, Marc Faber opined on Bloomberg TV this morning that if he "was running Germany, [he] would have abandoned the eurozone last week". We suspect that given the lack of real steps forward and no additional exposure (as yet) for Germany that they can hang on a little longer before they reach the final phase of the game-theoretically optimal exit (that Credit Suisse and us share) of a mercantilist GERxit occurring sooner than many think (benefiting from deposit inflows and low-EUR-based high profitability from exports for as long as possible and not a moment longer). The "cosmetic fix" of this latest summit, as Faber calls it, simply does not solve the fundamental problem of over-investment in the euro-zone. He is bottom-fishing in some European equities (though avoiding banks) and is not long the Euro here as he sees the modest rally in risk assets in Europe as merely a reflection of illiquidity and a grossly oversold market reverting on 'not a total disaster' though he reminds us early on that "pooling 100 sick banks does not make them healthy."
Faber on the eurozone crisis:
“If you put one or 100 sick banks in a union, it does not change the fact that they're sick. In my view the markets are rallying because they were grossly oversold. When markets are grossly oversold, especially markets of Portugal, Spain, Italy, France, then any news that is not disastrous news propels stocks higher. I think that combined with seasonal strength in July, the rally has carried on somewhat. But it is another cosmetic fix, a quick fix that does not solve the long-term fundamental problem of over investment in the euro zone. And what it does, basically, it forces Germans to continue to finance people in Spain and Portugal and Greece that are living beyond their means.”
“If I were the Germans, if I were running Germany, I would have abandoned the eurozone last week…It is a costly decision, but losses are there and somewhere, somehow, the losses have to be taken. The first loss is the banks. In the case of Greece, one should have kicked out Greece three years ago. It would have been much cheaper.”
On whether he’s picking up European equities:
“Yes. In Portugal, Spain, Italy, and France, the markets are either at the lows of March 2009, or lower. Along with bad companies and the banks, there are also reasonably good companies. Stellar companies, but they have been dragged down. I see value in equities, regardless of whether the eurozone stays or is abandoned.”
“[I’m buying] anything that has a high yield, or what I perceive to have a relatively safe dividend. In other words, I do not expect the dividends to be slashed by 90%...I am not buying banks, but maybe they could rally. I am just not buying them because I think there will be a lot of equity dilution and recapitalization. I’m not that keen on banks.”
On whether he’s going long on the euro:
“No, I’m not going long on the euro because I’ve always maintained a diversified currency portfolio. I have U.S. dollars, euros, Singapore dollars, some Canadian dollars, and even some Australian dollars. And I have a lot of Asian currencies, Malaysia, Thai baht and so forth.”