A 30% rebound? So the tactic or strategy here if you want to be invested in asian equities, I mean, with the yields that high it seems like a good time to get in and hold stocks, specially the ones that pay you and pay you well to hold them.
MARC FABER: Yes, sure. Actually I said that asian markets are better valued than the US markets and I also pointed out that now you are paid to wait here in Asia. I don`t think there is an huge downside risk, I think there is upside potential.
Don`t forget that from the November 20 low, even the S&P 500 Index managed to rally 27% between November 23 and January 6 and many shares like mining companies, you take Newmont Mining, it was a 21 dollars and it went to 45, DryShips was at 3 and went to 15, you will have huge volatility in this environment of ultra low interest rates.
It doesn`t mean that the global economy will heal anytime soon specially given the government interventions that will in my opinion prolong the crisis and not solve it at all.
What would be the catalyst for that 30% upside you mentioned?
MARC FABER: First of all we have fallen dramatically and markets have become oversold, in particular we have to talk about commodities because that is probably the most oversold market of any, but secondly the global economy fell of a cliff between September and January of this year, in the last 4 months and the news is universally very bad.
But don`t forget when the news were very good in 2007 the market peaked out, so on bad news you can reach a temporary bottom and also I believe we have this tremendous downside momentum in the global economy, in other words we fell of a cliff and the news will remain bad but maybe not as bad as in the last 4 months and then the goldilocks crowd that is always around us and will never give up, no matter what, they will say “now, see, the global economy is improving so lets buy”.
I am not a great believer that there is going to be a great economic improvement but I believe that market participants that are always bullish because they have been conditioned to be always bullish over the last 25 years, they will push markets up.
Are the commodities prices and stock related commodity plays truly reflecting demand and supply out there?
MARC FABER: Well I think commodity markets reflect demand and supply and that`s why they totally collapsed and as you may remember, it was my view last year that in the second half of 2008, commodity markets would implode because they should not have gone up in the first place after September 2007 when the global economy was already decelerating. So we went up to much because of monetary policy of the US, and then we crashed.
And now we are at such a low level that new supply won`t come to the market. So if you think there is going to be an economic recovery in the world, in a year`s time, or in 5 years, or in 10 years, or whenever that happens, there will be a shortage of commodity prices and commodity prices will go ballistic and because when compared to equities, commodities are essential at their lows since the major bottom in the CRB Index in 1999 and 2001 around 185. Now we are at 215-220 so we are only up 20% from major lows that were lows after 20 a year bear market.
This is the transcript of Marc Faber`s latest interview.
