Saturday, September 26, 2009

Faber speaks with forked tongue

On the 22 of September Faber said this:
"Now we have a particular situation in the US whereby interest rates are at zero and the fed has made statements whereby they will not increase interest rates much. They will keep them below the rate of inflation. In this environment the worst investment, of course, is to be in cash, in the long-run, or be, even worse in US government bonds. What you want to be is in assets, whether it be real estate, commodities or in equities. And ideally, of course, you are in foreign currencies or a currency that can not be increased in its supply, like gold, silver, platinum, palladium etc."
 ..."my view is, probably over the next 2, 3 years you are better off being in equities"

It is clear that these statements can not be misinterpreted. I can find no other way to understand the statements above than he foresees a total collapse of the dollar and explosive inflation in the long-run. While I agree, inflation will likely be a problem at some point. It is likely 4 to 6 years away. Anyone who takes the Faber trade will be broke by then, yet Faber may still try to say - "I was right". Again, I think that his views are irresponsible and dangerous.

Currently he is saying:
“I wouldn’t be surprised if we’d seen the peak of the market for this year because the economic news isn’t going to improve very much. The correction in the market has been overdue for quite some time.”
A correction is not deflation...and a pullback in Gold is not deflation. He is looking for pullbacks. And, in my opinion the stated basis for a pullback is pretty flimsy at best. I would much prefer him to state some technical reason...absense of good news does not drive prices one way or the other. If absence of bad news were to drive prices then this bear market rally would not have been possible. Faber looks pretty confused and disoriented. I can understand that, this market is not rational (and no market is), but the smarter you are the more you try to rationalize it. This is why Faber is missing the big picture...he is trying to come up with a nice rational and intellectually stimulating story or thesis. That is, by the way, a great way to be entertained...but definitely not a great way to make money.

A dollar crash and inflation fit into a very marketable story... probably you can get a lot more signups for $200 if you use that story than a huge dollar rally and epic deflation.

What we will likely get in my opinion is not a pullback, but a resumption of the trend. Just look at that real estate chart that I posted previously. We have a way's to go before we even get to wave 4. And, Faber absolutely recommends real estate assets in the above video.
© 2009 m3, ltd. All rights reserved.