MARC FABER UPDATE

Marc Faber’s latest investment outlook from his Gloom Boom and Doom report.

1 . Earlier this year it was easy to call for a strong rebound in asset markets.  Markets were extremely over-sold and sentiment was extremely negative.  This is no longer the case.

2.  Bullish sentiment is higher than at the 2007 peak.

3.  Worrisome is that corporate insiders have been selling at an extremely high pace. The last time there were more US corporate executives reducing their stock holdings than increasing them was in June 2007 shortly before the stock market topped out. According to Bloomberg,
“executives at 252 companies in the S&P 500 unloaded shares since March 10, with total net sales reaching $1.2 billion, according to data compiled by Princeton, New Jersey-based InsiderScore, which tracks stocks. Companies with net sellers outnumbered those with buyers by almost 9-to-1 last week, versus a ratio of about 1-to-1 in the first week of the rally.”

4.  Another negative for the stock market is that the demand supply situation has deteriorated. According to TrimTabs Investment Research, prior to May 2009 the highest level of share issuance in a given month was $38 billion. May brought about a new all time record with monthly sales totaling $64 billion! As can be seen from Figure 13, the bull market of 2003 to 2007 was partly driven by a reduction of shares outstanding through buy-backs and M&A activity (leveraging). Now, however, deleveraging is the order of the day and share issuance is running at a record.

5.  Share issuance is also running at a record level in many foreign markets and is diluting existing shareholders. In Singapore, equity funds raised as a percentage of total market capitalization is at an all time high.

6. I have to confess that I do not have a very strong conviction at this time. For the S&P 500 there is strong support around 880 and resistance around 950. I could envision a scenario where we break out briefly on the upside before a more meaningful correction unfolds. But as mentioned above, renewed weakness is likely to provide a buying opportunity.

7.  Personally, I would not be surprised to see for a while renewed deflationary fears
developing with bonds rallying (as mentioned in last month’s report), the US dollar rebounding and commodities and equities coming under renewed pressure.

8.  I have had many professional gamblers as friends and as clients (two of them made over $500 million – starting with nothing at all – by using computers to calculate the odds of bets on horses – I have seen the money, so it is no exaggeration). Most of the time the odds were not particularly favorable and they only took small positions. But once in a while, the odds were very favorable to take a large bet and that’s when they made the big money.

Right now, I do not see anything that offers a particularly favorable risk reward opportunity and, therefore, I would take it easy. My doctor advised me “to cut back on predictions, “because as Mark Twain observed: “prophecy is a good line of business, but it’s full of risks.”

Great stuff.  You can read the full report over at DealBreaker.

One Response to “MARC FABER UPDATE”

1. Marc Faber July Gloom Boom and Doom Update | Marc Faber Report Says:
   

   [...] Hat tip to http://www.stockmarketnewz.com/2009/07/07/marc-faber-update/ [...]

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