Money Supply and Equities
Dr. Marc Faber comments at AME Info that "the notion among investors has again arisen that the Fed will soon cut interest rates and support the economy and asset markets with monetary policy measures. I believe that, sooner or later, this scenario is very likely, but instead of boosting the real economy and asset prices in the US, it will lift precious metals, commodities and foreign assets further." This is a provocative call - why would this be the case?
Faber continues: "In the monetary philosophy of Mr. Greenspan and Mr. Bernanke, a bubble is never a problem. However, if the bubble bursts, a problem might arise - as was the case in Japan in the 1990s and in the US in 1929/32. So, the central bank must immediately provide enough liquidity to the system in order to prevent the bursting of the bubble having a negative impact on the economy!"
"In the long run [this is] a suicidal monetary policy because it leads to one asset bubble after another. So, after the NASDAQ in 2000 and housing in 2005/2006, where is the next big bubble going to occur? In my opinion, two asset classes stand out as asset bubble candidates: grains and Asian assets. Wheat and corn have led the grain and agricultural commodities price advance over the last two months. But now, it is very likely that the entire sector including especially soybeans, sugar, coffee, and cattle, will follow. Other 'bubble candidates', are Asian currencies, stocks, and real estate prices."
Given these factors and the belief that the US equity market is overbought, investors are complacent, bullish sentiment is high and volatility is low, Faber leans to a short the S&P position rather than long.
Strategy Update: Focused Analyst Growth started the quarter weak but since then has exceeded the S&P 500 by over 10 percentage points quarter-to-date even though it has held 10% cash for the last month. Performance year-to-date is a positive 27.7%. The best performing stocks held in the strategy are LSI Logic and Allegheny Technologies, although we would not be buyers of these two at today's prices. On Wednesday, our manager moves to a 20% cash position. Visit our website for more information on how we can bring you investment solutions that work.
Faber continues: "In the monetary philosophy of Mr. Greenspan and Mr. Bernanke, a bubble is never a problem. However, if the bubble bursts, a problem might arise - as was the case in Japan in the 1990s and in the US in 1929/32. So, the central bank must immediately provide enough liquidity to the system in order to prevent the bursting of the bubble having a negative impact on the economy!"
"In the long run [this is] a suicidal monetary policy because it leads to one asset bubble after another. So, after the NASDAQ in 2000 and housing in 2005/2006, where is the next big bubble going to occur? In my opinion, two asset classes stand out as asset bubble candidates: grains and Asian assets. Wheat and corn have led the grain and agricultural commodities price advance over the last two months. But now, it is very likely that the entire sector including especially soybeans, sugar, coffee, and cattle, will follow. Other 'bubble candidates', are Asian currencies, stocks, and real estate prices."
Given these factors and the belief that the US equity market is overbought, investors are complacent, bullish sentiment is high and volatility is low, Faber leans to a short the S&P position rather than long.
Strategy Update: Focused Analyst Growth started the quarter weak but since then has exceeded the S&P 500 by over 10 percentage points quarter-to-date even though it has held 10% cash for the last month. Performance year-to-date is a positive 27.7%. The best performing stocks held in the strategy are LSI Logic and Allegheny Technologies, although we would not be buyers of these two at today's prices. On Wednesday, our manager moves to a 20% cash position. Visit our website for more information on how we can bring you investment solutions that work.
posted by WRA Strategy Group at 7:52 PM
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