Wednesday, July 6, 2011

Marc Faber gets Gloomier Still - Beacon Equity Research

Marc Faber, publisher and editor of the Gloom Boom Doom report, told CNBC he expects a bigger correction than he earlier predicted.

Instead of a 10% correction he once saw for the S&P, he now expects the 500-stock index could drop to 1,150, sometime from August through October, or drop more than 16% from the May 2 high of 1,370.58.

“Usually what happens in the market, we have seasonal strength in January, then weakness in February, then strength in March-April and then weakness in May-June and then again a summer rally in July until early August,” Faber told Udayan Mukherjee of CNBC TV-18.

“So, we are moving into seasonally strong period,” he continued.  “But unlike many strategists, I don’t think we are going to make a new high. I think the S&P or the overall market in the U.S. will close 2011 at about this level or lower not higher as every strategist is predicting. I think we have seen the highs for this year, let us put it this way.”

Faber, who initially said on Oct. 26 he expected a 10% correction in the S&P, reiterated his call on Jan. 25, and once again reminded investors in an interview with Newsmax in early May, now sees a deeper correction of another nearly 100 points from his original prediction.

“I think we can rally to around 1,330 on the S&P now, but not make a new high above the 1,370 highs, which we saw in May,” he said.  “And then, in my view, we would be going down to maybe 1,150 on the S&P.”

As far as timing of the low, the seasonal weak period of late August through October will most likely be when the S&P bottoms at support at 1,150, according to Faber.  Historical data reveals very low volumes of incoming funds moving into stocks during the early fall months of September and October.

“I think the second half of August, September-October will be rough months,” Faber warned.

His overall thesis for stocks can be applied to commodities, as well.  Faber suggested that slowing economies in the U.S., Europe and China will bite into assets prices which have benefited from the risk-on tide of investment capital from money and hedge funds.  That tide is turning, according to Faber.

Risk-off trading is back.  He anticipates that oil, too, will drop another 20% from the already nearly 20% drop in Brent from its $127.02 print on April 11.

“I think all commodities are weakening at the present time, which essentially reflect a significant slow down in the global economy,” he said.  “We will weaken further, in my opinion, until about the end of December. I do not think that oil will collapse. I think we may go down to around $80-$85 per barrel [Brent] or so and then have further strengthening in the years ahead.”

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