Marc Faber, Fed's QE2 Could Trigger Stock Market Correction
by Dian L. Chu
Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the potential impact of further quantitative easing (QE2) by the U.S. Federal Reserve in a Bloomberg interview on Oct. 36 (clip below).
Correction Triggered by QE2?
Faber sees Democrats — "sadly enough" — would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.
Equity has done well in Sep. and Oct months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue.
Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.
But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.
Equity Better for the Next Decade
Looking at investing for the next ten years, equities, emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash. However, Faber advises against financial, auto, and aircraft. He's been in the high tech sector and likes Microsoft (MSFT).
Precious Metals Due for Pullback
Faber is currently recommending agriculture commodities, and the accumulation of precious metals. On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expect the next leg up in 2011.
Dollar Near An Inflection Point
Faber says dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought. So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices.
He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.
Expect a Strong Pullback of Chinese Economy
Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances.
November 1, 2010
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