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One man who forecast the US stock market crash of 1987 – Marc Faber – reckons it’s time to get out of the markets.
In an interview with Bloomberg, he said he believes that ‘in the next few months, we could get a severe correction in all asset markets… in the buying mania that we have now the wisest course of action is to liquidate.’
Faber has a pretty good track record – he recommended that investors buy into gold in 2001 (at a time when few pundits – other than MoneyWeek – had even considered the yellow metal as a serious investment). So it’s sobering to hear him predict a slump.
But it’s not all bad news…
Respected investment commentator Marc Faber reckons tough times are just around the corner for global markets, citing the fact that investors are bullish on just about everything as being a bad sign. Meanwhile, insiders are selling out at the fastest rate for two decades – sales of stocks by US chief executives are at their highest compared to purchases since 1987.
But Faber, who happily describes himself as a ‘permabear’ in his monthly newsletter, ‘The Gloom, Boom & Doom Report’ is still upbeat in the longer term on some asset classes, particularly in Asia.
Among the markets he likes is Singapore. ‘Singapore is financially the strongest country in the world’ in terms of reserves to GDP, he says, which means the currency should continue to strengthen against the dollar. Stocks he likes include Singapore-listed Real Estate Investment Trusts which ‘still offer reasonable value’. His picks in the sector include CapitaMall Trust (CT SP), which has properties throughout Singapore, and Ascott Residence Trust (ART SP), which has apartments across Asia. Another Singapore-listed Reit offering exposure to Chinese retail property is CapitaRetail China Trust (CRCT SP).
He also remains keen on Taiwan, which UK investors can buy into via the iShares MSCI Taiwan Index exchange-traded fund, while MoneyWeek favourite Japan also gets a look-in, with Faber telling Bloomberg that “Japanese stocks may prove good bets this year” after experiencing the smallest gains of the world’s top 10 markets last year.
We’d agree with him on all of these suggestions – but there’s one tip he gives that we really do think every investor should have some degree of exposure to. And as regular readers may already have guessed, that’s gold.
Faber’s concerns about global markets – and our own – hinge to a great extent on the fact that there is simply too much money floating around in the system, fuelled primarily by current Western central banking policy of slashing interest rates every time it looks as though there may be a financial crisis. The trouble is, money’s just like water – it has to flow somewhere. And when it looks like one asset is getting too full, it moves onto the next one, and then the next.
A series of bubbles from dot-com stocks to property is the result, until now, it’s hard to tell which markets are not in bubble conditions.
Now as Faber points out, gold won’t be immune to any collapse on global asset prices. But if it does correct, ‘that should provide the last great buying opportunity.’ As he rightly points out to Bloomberg: ‘The price of gold will continue to go up and probably very substantially. In the long run it’s very clear that central banks are basically increasing the supply of money and the supply of gold is obviously very limited.’
Lots of pundits have turned ‘contrarian’ on the US dollar recently, reckoning it will make a comeback in 2007 – but the fundamentals are pretty clear, as Faber points out. If you want more dollars, the Fed can just hit a button on its printing press. That’s pretty much instant. If you want more gold, you have to find it, then build a mine to get to it. That takes time and effort. So which of these two currencies is more likely to hold its value? Which would you rely on in a crisis? It’s not a difficult answer.
For more on buying gold, read our most recent beginner’s guide, on the website at:A beginner’s guide to investing in gold
Turning to the stock markets…
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In London, the FTSE 100 fell back from an earlier high of 6,218 to end yesterday just one point higher, at 6,196. Broadcaster BSkyB was the day’s top performer on positive broker comment, whilst oil stocks and miners continued to dominate the fallers. For a full market report, see: London market close.
Elsewhere in Europe, the CAC-40 ended the day 14 points higher, at 5,533. In Frankfurt, the DAX-30 was also higher, ending the day at 6,614, a 6-point gain.
Across the Atlantic, stocks were mixed. The Dow Jones ended the day 6 points lower, at 12,416, with oil stock Exxon-Mobil weighing on the average as the price of crude continued to slide. The Nasdaq climbed 5 points to close at 2,443 as investors fleeing the energy sector turned to tech stocks. And the S&P 500 closed flat at 1,412.
In Asia, the Nikkei fell 295 points to end the session at 16,942.
The price of crude oil continued to fall this morning, with futures last trading at $55.20 in New York. In London, Brent spot was at $54.49.
Spot gold was trading at $612 today, whilst silver had fallen to $12.42/oz.
And in London this morning, shares in Wm Morrison hit their highest level in nearly a decade this morning after the retailer reported good Christmas sales. The company’s share price had risen by as much as 5.4% this morning.
And our two recommended articles for today…
How contrarian investors can profit in 2007
– If you want to be a successful contrarian investor this year, first you need to learn when to buy – and then how to overcome the ‘fear factor’. For analyst Jim Stanton’s top tips on this profitable investment strategy, read: How contrarian investors can profit in 2007
The global economy and the lessons of 2006
– Barring shocks, markets and economies are heavily influenced by trends of the recent past. Economist Stephen Roach looks at what the events of 2006 can teach us about the year ahead. To find out what the longer-term effects of the US housing bubble will be, and why this year could see a challenge to the commodities super-cycle, see: The global economy and the lessons of 2006