Global market sentiment improved following the deal aimed at easing concerns over the eurozone's debt and banking problems. Given that world markets are in oversold territory, Marc Faber, Editor & Publisher, The Gloom, Boom & Doom Report, Marc Faber Limited is of the view that equities may rally for some time more, however, the global picture has still not changed drastically.
“Don’t forget July is a month of seasonal strength and that we are coming into the election, there maybe some more money printing and fiddling with statistic sense of ours. So the market may actually rally a bit more. But it doesn’t change the global picture, which is essentially for a global economic slowdown, for an increasing number of companies that are reporting disappointing sales for forecast, for earnings.”
In his opinion, “we are still in a high risk environment. Eventually, in the next 12 months, you will be able to buy most markets at a lower level than today.”
Below is an edited transcript of his interview. Watch the accompanying video for more.
Q: What did you read first of the kind of reaction global equities had to the Euro Summit and the notes that came in from there?
A: To start with, I think markets were oversold especially in Europe. When there was moderate good news, there was a lot of European short covering and a lot of stock rebounded by 5-7% in just one day.
Q: Would you say the rally is probably short-lived and saw the best part of it play out by last week itself?
A: This is too early to tell. Basically, we made a low in early June and at 1261 on the S&P and then we rallied and we came down again, but we didn’t test a new low. We may rebounce to around 1400 on the S&P. Don’t forget July is a month of seasonal strength and that we are coming into the election, there maybe some more money printing and fiddling with statistic sense of ours. So the market may actually rally a bit more. But it doesn’t change the global picture, which is essentially for a global economic slowdown, for an increasing number of companies that are reporting disappointing sales for forecast, for earnings.
When there is a minor disappointment that’s what the case on Friday in the case of Nike, the stock then drops very significantly and erases essentially all the gains of the last three or six months. So we are still in a high risk environment. Eventually, I think that in the next 12 months, you will be able to buy most markets at a lower level than today. The only stocks I bought in the last 10 days are from the fresh issues in Portugal, Spain, Italy and France.
Q: How heartened were you by the comments that were made at the Euro Summit though, either in terms of working towards a banking union, the vague indication of looking at euro bonds as an option, do you think some significant ground has been covered or was it a mission statement that would probably not hold true for very long, at least in terms of solving the euro crisis?
A: I think the details will have to be worked out and that will take a long time. So it’s not a solution that immediately will be applied and successful.
Q: You track the euro-dollar in great detail as well. Would you say things or dynamics have changed for both those currencies and the second half may yield more weakness for the dollar or do you think any strength on the euro is short-lived and should be approached with a shorting stance?
A: In my view, the euro is not a very desirable currency, but the US dollar is not much better. I think if you look at the action of central banks around the world, it is very difficult to find any paper currency with which you can be particularly happy. If the Chinese economy slows down more as I expect it will then you will also have easing in China and capital flight and maybe the Chinese RMB will weaken.
Among the context of who is the least ugly currency I would say probably the US dollar for the time being, but that doesn’t change the fact that the US dollar was overbought recently and sentiment surrounding both European stocks and the euro was extremely negative. So I think a rebound in the euro may continue very well and then will have renewed weakness in my view.
Q: Just to step away from this recent news flow for a second though, it’s been a five year bear trend almost for markets. How would you call the second half of this year? Do you see anything that marks an end for the bear rally or a troughing out of markets or do you think we are in for a longer haul here?
A: We have to be very specific. The total return of equity if you include dividends since 2007 hasn’t been a disaster. It hasn’t been particularly good, but it hasn’t been a disaster and the return from bonds have been very good and for commodities depending which ones you owned was also reasonable. So I think for investors, the situation was not all that bad. But I concede that a lot of people lost a lot of money because they were badly positioned, either overweight, stocks that went down a lot or they were in the case of the US heavily geared into the property market that tumbled and reversed. So I agree that it hasn’t been a particularly happy time for investors.