Marc Faber’s Excerpted Comments from the Barron’s 2009 Roundtable

By on January 25, 2009


“…the market gave back in the 14 months ended Nov. 21 as much as in 1973-74. Stocks became oversold. People may interpret the coming fiscal and monetary reflation as slightly more favorable, and stocks might rise. You can have a horrible economic backdrop and markets that move up. Also, the worse the crisis, the greater the polarization between good companies and those that don’t have money to do R&D and expand market share. And by the way, it is a grave error to support weak companies like General Motors [GM]. In a deflationary crisis you want to get the supply down as quickly as possible.

How you play this market depends on your time frame and objectives. If you want to build some exposure in Asia, buy high-quality companies that will survive. In Singapore, that includes Fraser & Neave, United Overseas Bank and OCBC, which is run by an American, David Conner. In Hong Kong, I like Swire Pacific and Sun Hung Kai Properties. Asian banks never understood CDOs [collateralized debt obligations], so they didn’t buy a lot.

Asians might go to casinos and gamble, but in their businesses they are ultra-conservative. In Thailand, buy Bangkok Bank and Glow Energy, and in India, Icici Bank and Infosys Technologies. Banks in Singapore sell for 1.3 times book. In Thailand they are below book and have relatively high dividends. If all these companies drop another 50%, which I wouldn’t rule out, buy more.

When market volatility goes up dramatically, you want to be in defensive groups like pharmaceuticals and food. When volatility diminishes, you want to be in cyclical industries. Among the most cyclical stocks are resource producers. They were driven up by incremental demand from China, and then collapsed. In the next six months they could have significant upside. I like Rio Tinto, BHP Billiton and CVRD [Companhia Vale do Rio Doce].

The financial crisis and collapse in commodities will keep supplies out of the market. Nobody is exploring now. There is no money, and projects are being postponed. Whenever the recovery comes, in five or 10 years, resources stocks will go ballistic from today’s low levels. If you’re optimistic about the next six months, too, when the news may be slightly better than today, you should own them. Freeport McMoRan Copper & Gold fell from 127 to 15 and is now 26. Xstrata, in Switzerland, is another one. A lot of these stocks are more attractive than gold, because gold is at a 20-year high relative to industrial commodities. Meryl recommended Kaiser Aluminum [KALU] earlier today. I would add Alcoa.

…when stocks decline by the magnitude seen in resources shares, or the Nasdaq after 2000, a base-building period follows that can extend for several years. When you print money, you can get an artificial bull market that exceeds everyone’s expectations.

In a recovery driven by easy money, zero interest rates and fiscal deficits, emerging markets — the most cyclical part of the global economy — can rebound. There is 50% upside in the Morgan Stanley India Investment Fund, the iShares MSCI Brazil Index, the Templeton Russia and East European Fund, the Greater China Fund, the iShares FTSE/Xinhua China 25 Index and the Turkish Investment Fund. Everything is bad in Japan, but they’re used to it for 20 years, so Japanese stocks might not go down more.

Next, the Treasury market won’t continue to rally. The inflection point in long Treasuries may have arrived. The yield on the 30-year bond is back up to 3%. The U.S. Treasury market is the short of the century. You can short it through the TBT [ProShares UltraShort Lehman 20+ Yr exchange-traded fund.] It goes up in price when bonds go down and yields go up. As an ultrashort fund, it moves 200% inverse to the move in Treasuries with maturities of longer than 20 years.

It may take two years to work out. On the long side, the Nicholas-Applegate Convertible & Income Fund trades around 5. The junk-bond market and convertible securities could rally substantially, as corporate bonds have done. The Federal Reserve’s move to buy up assets will lead others, including Bill Gross at Pimco, to front-run the government and buy the same assets. High-yield bonds and mortgage-backed paper could rally.

I agree with Felix’s bullish view of gold, except that gold prices might not go up until later in the year. The price was up 5% in U.S. dollars and much more in other currencies in 2008, and people may sell it first to buy something lower-priced. Felix pointed out [in last week’s Roundtable installment] that gold-exploration companies have been decimated by the financial crisis. I see the potential for a huge rebound. A lot of exploration companies are selling for 2 or 3 a share, which is like buying an option with a very, very long expiration date. If the global economy improves, they can probably produce. If not, prices will go ballistic because there will be no new supply. Gabriel Resources, in Canada, trades for 1.60 Canadian dollars. Newmont Mining [NEM] owns a sizable stake.”

Note: Several counterpoints from the other panelists were deleted from the above. Buy this week’s Barron’s to find out what else was said.



One Comment

  1. Anonymous

    December 25, 2009 at 2:31 pm

    no sГ©, no sГ© cialis dosis Credo che si fanno errori. Scrivere a me in PM, ti parla. cialis precio espana fiqpoebifz [url=]comprar viagra[/url]

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>