INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor believes equities are in a trading range. He sees markets first dropping somewhat into October-November and then rallying again towards the end of the year.
Speaking in an exclusive interview with India's CNBC-TV18’s Udayan , Faber said: "I think the difficulty is what to do with money when interest rates are essentially at zero on US dollar...obviously people look at their portfolios and they see stocks that have dividend yields".
Asked whether the S&P 500 could break its recent low, Faber said: "We have touched 1,010 at the low point and we traded it several times around 1,040," adding that hough there is some support there, he "wouldn’t bet that it’s not going to be broken on the downside".
Explaining himself, Faber said: "The fact is simply the economy is not doing well and it is very likely that they will have more monetary easing and further stimulus packages".
"Maybe the stock market won’t be very happy about additional stimulus, more interventions into the free market," he said, adding "though anything could happen, but let’s put it this way that I do not think that we will go and breakdown below the March 2009 level.
"I think that we have seen a major low [in March 2009] and that we will be in a kind of a trading range around this level we are at now," Faber said suggesting that the Fed's economic policy measures would likely fail to boost economic activity in the US but could support asset markets.
Reiterating his foundness for gold, Faber told CNBC-TV18: I think we may have geopolitical events that could play a role in valuation of asset. That’s why I tell people they should have some money in physical gold.
In November, Faber, known as Dr. Doom, had warned about future geopolitical tensions brought about by the economoc crisis and the high levels of debt. "At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly,” said Faber.
"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he said.
In the August edition of the ‘The Gloom, Boom & Doom Report,’ Faber says if the DJIA where to fall by more than 20% from the present level there would be further massive fiscal and monetary stimulus packages, not just in the US but worldwide.
"I want my readers to think very carefully about the implications of a Dow below 1,000 (or even just below 5,000). Does anyone really think that the money printing presses won't run 24 hours a day? For sure I don't," he wrote in his August report.
In his Agora Financial Investment speech, in July, Faber articulated how the Fed was not learning from its mistakes. "Their current policy of cutting rates to zero is designed to create sustainable growth, but they've created larger and larger volatility in markets and there are many unintended consequences of their actions, he siad.
The Fed doesn't pay any attention to asset bubbles when they grow. That's their official policy. But they flood the system with cash when bubbles burst. They only care about bubbles when they crash. It's a very asymmetric response and it has many unintended consequences.
Letting bubbles inflate and then fighting them when they burst actually worked for a while. That's what makes it dangerous.
It worked in the '90s, Faber admitted, adding that we "shouldn't read too much into this: This period was assisted by unusually favorable conditions. From 1981 until early last decade, commodities were in a bear market after a bubble in the '70s and early '80s. And interest rates were falling throughout the '80s and '90s, too. They almost never stopped falling. That made Fed policy look like it was working.
Today, the Fed has created a bubble in everything, in every single asset class. This is an achievement even for a central bank. Stocks, commodities, bonds, real estate, gold. Everything goes up when the Fed prints. The only asset that goes down is the US dollar," he said.