Marc Faber Says World Heading for `Major Inflection Point’

Bloomberg – 10/12/2010

Global markets are heading for an “important turning point” as interest rates begin to rise within about three months and the U.S. dollar gains, according to investor Marc Faber. Investors should buy stocks and sell cash and bonds because governments are continuing to print too much money and may create a new “credit bubble,” Faber, publisher of the Gloom, Boom & Doom report, told reporters during a forum in Seoul today.

“Instead of interest rates going down, they could start to go up, instead of the dollar being weak, it could strengthen,” Faber said. “I’m ultra-bearish on everything, but I believe you’ll be better off owning shares than government bonds.” The Dollar Index slid 8.5 percent last quarter, the most since June 2002, and dropped 1.3 percent this month after Federal Reserve Chairman Ben S. Bernanke signaled he may add money to the economy. That new supply is reflected in exchange rates, based on how the currency reacted to the last round of so-called quantitative easing, said HSBC Holdings Plc, BNP Paribas SA and Nordea Bank AB. The central banks of Israel and Taiwan raised borrowing costs in the last 15 days. Faber’s recommendation on stocks is shared by Warren Buffett, the billionaire chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. Investors buying bonds now “are making a mistake,” he said Oct. 5 at Fortune magazine’s Most Powerful Women conference in Washington.

Buffett, Stocks

“It’s quite clear that stocks are cheaper than bonds,” Buffett said. “I can’t imagine anyone having bonds in their portfolio when they can own equities.” U.S. stock dividends are paying more than government bonds. Ten-year Treasuries yield 5.2 percentage points less than equities of companies in the Standard & Poor’s 500 Index when adjusted for annual inflation, near the most since March 2009. Faber told investors to abandon U.S. stocks a week before 1987’s so-called Black Monday crash and said in August 2007 that U.S. shares were entering a bear market. The S&P 500 peaked two months later before retreating as much as 57 percent.

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