Saturday, May 21, 2011

Faber: Bulls to Get Slaughtered as Stocks Plunge

Contrarian investor Marc Faber says stocks will fall sharply in May, turning the recent breakout in stocks into a trap for the bulls.
The markets are due for a correction and the technicals point to a weak market, Faber tells Wall Street Pit. In particular, he points to the decline in new 52-week highs as evidence of an unhealthy internal market.

Right now, Faber advises investors determined to buy stocks to stay away from cyclicals, tech stocks, and banks, sticking with safer plays such as consumer staples.

Marc Faber, publisher of The Gloom, Boom and Doom report, likes gold as a long-term investment.

He’s more cautious when it comes to silver because of its recent runup in the price, and expects a 20-percent-plus correction in the metals complex because the inflation trade has become too crowded.

Faber says copper and the S&P 500 are highly correlated, and finds he fact that the stock index reached a new high while the metal didn't is another signal that stocks could follow commodities lower in the short-term.

Faber says the U.S. housing market has another 10 percent to fall, but valuations are now attractive and housing hasn’t been this cheap since the early 1980s. In a serious inflation environment, Faber would rather own housing than paper dollars.

Faber also expects the United States will run trillion-dollar budget deficits for the next 10 years and the Federal Reserve will have to at least partially monetize this debt to keep interest rates low.

But not everyone agrees with Faber. Another notorious equities bear now says he's bullish. David Rosenberg, senior strategist and economist at Gluskin Sheff in Toronto, is telling clients that the stock market isn't headed for a crash.

The market has been rallying since March 2009, yet Rosenberg has been wary of the trend, defending bonds against "inflationistas" and warning that deflation remains the far greater danger, CNBC reports.

Skies seem bluer. "This is not about throwing in the towel," Rosenberg writes in a letter to clients.

"It is an acknowledgment of what the market internals are flashing at the current time from a purely tactical and technical standpoint."