Adding Marc Faber’s Voice To Bearish Chorus

The chorus of market prognosticators (worth listening to) expecting a correction has gained yet another luminary member: Marc Faber. In a recent interview (see video below) with Bloomberg TV Faber opines on the political and regulatory landscape as well as the monetary policy of the Federal Reserve.

As usual, he doesn’t mince his words. Faber criticizes Obama for failing to uphold his promise of change in Washington and lashes out – as expected – at Ben Bernanke. At around the 7 minute mark he comments on the bond and equity markets. He expects that US Treasuries will rally in the next 3 months while stocks will face a correction:

Faber: You have to shift right now, for the next 3 months out of emerging markets, they may correct 20-30%, out of industrial commodities and into US equities on a relative basis. They may not go up but may go down less than the others. I think the sentiment, just recently, was very very overly optimistic about the inflation trade: commodities, equities and so forth, and overly negative about Treasury bonds. So Treasury bonds are oversold and, as of tonight I got a signal for US Treasuries. But not for the long term, I think it is a rally that may last 2-3 months.

Q: So you’re saying US Treasuries and US equities, the place to be right now – at least for the short term?

Faber: Well, I think Treasuries are the best place for the next 10 days and probably for the next 3 months, as is the US dollar. But equities in the US will outperform emerging markets because they may go down less than the emerging markets. I think a correction is coming in the order of 10% on the S&P and 20-30% in emerging markets.

I’m glad to hear that Marc Faber is getting bullish on Treasuries because late last month I was warming up to them as well for a trade: An Intermediate Low For Treasury Bonds Is At Hand. Of course, that’s not the reason why I’m adding him to the bearish chorus. There are plenty of bears around but the problem is that they are broken clocks.

The reason I pay attention to Marc Faber is that like the other members of the bearish chorus, he is happy to be agnostic and has correctly timed the market at major inflection points. While many completely missed the March 2009 low in US equities, Marc Faber was one of the few who changed from an uber-bearish posture to a tactically bullish one to ride what he expected would be a reactionary rally.

Finally, as a corollary to what Faber comments earlier on in the interview with Bloomberg TV, the Financial Crisis Inquiry Commission (FCIC) will be releasing its final report tomorrow (Thursday January 27th, 2011). The New York Times reports today from early access to the report that there is plenty of blame to go around. From the Clinton era removal of derivative regulation to lax regulation from Timothy Geithner’s New York Fed to George Bush’s random response to the crisis as it unfolded and of course, center stage is former Chairperson of the Fed, Alan Greenspan who championed deregulation and was instrumental in the blowing of two consecutive bubbles in the stock market and housing.

The FCIC is holding a conference tomorrow morning at 10 am EST to discuss the report and they will also release the full document on their website.

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4 Responses to Adding Marc Faber’s Voice To Bearish Chorus

  1. Tiho says:

    Marc Faber was actually bearish on Treasuries around October and November 2010, when the majority of investors where piling into them. He voiced his opinion stating that the world was heading for a major infliction point – global rise in interest rates. So was another great investor, Jim Rogers. Debt is getting out of control in the Western World, while inflation is going nuts in Asia. The market is starting to tighten, with or without the FED.

    Therefore from a contrarian point of view, shorting Treasuries in November 2010 was the “right trade” as sentiment got so extreme during the “double dip scare” when the DSI hit 98% bulls, majority of the hedge funds where bullish on bonds and so where the majority of retail investors as ICI mutual fund flows were recording a streak of 99 weeks into bond funds. The current move is just a counter trend rally, so the call you made is merely trying to trade against the trend. I would not engage into such a trade, even though it is understandable why one could/should. Trading against the trend is not a rule to break (if you believe infliction point was Nov 10). Treasuries have become oversold from short term point view and but they are not oversold from weekly or monthly perspective (long term view). This is not an infliction point – the infliction point was November 2010 on the short side.

  2. Pingback: FCIC’s Full Report On The Financial Crisis | tradersnarrative

  3. Babak says:

    Tiho, deciding whether to pick counter-trend rallies or to go with the primary trend is a matter of style (or time frames). But in any case, I’m not sure what you mean when you say that the inflection point in bonds was November 2010. The 10 year Treasuries reversed course in early October 2010 and the 30 year T-bills in late August or early September 2010.

  4. Pingback: Renting Gold For An Opportunistic Trade Higher | tradersnarrative

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