Marc Faber, Make Money on Stocks Volatility While Holding Physical Gold

By: Dian_L_Chu

Dr. Marc Faber told investors to buy stocks on March 9, 2009 when S&P reached its low since 1996, and predicted a 20% decline if the index broke a new high. 

Now with the S&P down about 13% from that high, Faber talked to Bloomberg on May 24 about his latest call on the markets, economy and what he thinks are the best place to invest now.

S&P - Support at 1,045, Resistance at 1,200

Faber now thinks the stocks are oversold in the near term on extreme negative sentiment towards the euro and North Korea, but there's strong support around 1,045/1,050.

From a seasonal perspective, a summer rally in June/July could be expected, with a lot of resistance around 1,200/1,220, followed by a downturn and bottoming out in October/November. By then, another round of stimulus could come in and prop up equities as a stronger U.S. dollar and bond market would give the Fed ammunition to ease the monetary policy.

(Note: In a separate interview with Tom Keene on the same day, Faber says S&P could fall another 15%.)

Bearish About Everything, But Quite Happy to Hold Physical Gold

“It’s a race in the purchasing power of paper money to the bottom, and the only assets that will, for sure, keep their purchasing power are precious metals.”

Even though gold has been performing quite well in the last 18 months, it is "conceivable" that gold could go down somewhat more. Nevertheless, envisioning a forthcoming disaster in the next few years, Faber says he is quite happy to own physical gold after looking at all asset classes.

Asian Equity Still Reasonable

Faber said investors may still buy a basket of Singapore, Thai or Hong Kong shares with about 5% dividend, which would be good for a long term portfolio.

On The U.S. Economy

“Stocks could go up and the economy can deteriorate...Government official should stay out of the economy... Mr. Obama and his clowns around him don't understand... they're going to destroy the economy."
The fiscal deficits will go up instead of down and Faber is not sure a recovery ever happened. Economy will eventually settle at a lower level than pre-crisis--the New Normal--according to Faber. Meanwhile, huge fiscal and monetary stimulus, coupled with private sector credit contraction, will ensure high volatility in economic and financial activity.

Make Money on Volatility

In a typical Faber fashion, he ended the interview with the following remark:

"In the long term, as I always said, we are all doomed, but in the meantime, because of the volatility in the markets, you can make money. The key is to know when to stop, and when you stop, how and where to allocate assets."
My Take on Gold & Stocks

The rally in the past couple of days, instead of a bona fide "recovery", are primarily from shorts covering after China reiterated their commitment to keeping the euro in their estimated $2.4 trillion of reserves, and big fund managers in the U.S. held onto equities while cutting bond holdings.

Most of the technical indicators of SPX are not decisively bullish either. The StochRSI is at 0.666 (a bad omen, I might add). close to 0.80, which is the level that could signal a pullback. (See Chart)

Gold and equities have been trending mostly in tandem while inversely with the euro since late last year. The current market sentiment most likely will not react kindly to any bad news or rumor about Europe or anything investors perceive that may negatively impact global economic or political stability.

Although uncertainty typically buoys gold as investors seek store of value by selling stocks and buying into gold, a deep retreat of stocks could trigger enough margin calls prompting a selloff of other asset classes including gold.

Meanwhile, gold, now at around $1,212, close to its all time nominal high of around $1,230 an ounce reached earlier this month, could be subject to some near-term profit-taking and technical correction as well.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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