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Marc Faber - Bullish On The US$, Bearish On Commodities; "commodities can easily drop 50%"

Recs

9

August 11, 2008 – Comments (6) | RELATED TICKERS: X , UDN , OIH

"I got friends in low places."

- Garth Brooks

Like Garth, the CAPS community has some commodity Bulls "in low places", due to the recent sell off. Piling on the commodity bubble in its seventh year of its' run up, ignoring the demand destruction caused by a global recession and ignoring extreme run ups in commodity prices can be tough on a Fool's portfolio. 

If you needed a trading strategy, one you could use to outperform the market simply do the opposite of any poistion promoted on CNBC by one of their shills, paid liars, or cheerleaders.

But if you see Marc Faber, you had better listen. Marc Faber is the author of Tommorrows Gold, a book you should read, whether you are a Bull or Bear.This correction in commodity prices may not be permanent or long term, as Marc Faber talks about here. 

Mish Shedlock transcribed part of the interview here from 09 Aug 08 from Bloomberg:

Q: Is the Euro Doomed to keep falling?
A: Whenever global liquidity tightens relatively speaking, it is very US$ supportive. Obviously, there are always time lags between economic events until the the market perceives them. So as a result of weak demand in the US, lower imports, the demand for oil declines, and that led to a tightening of global liquidity which led to the strong dollar. Investors speak of weak oil price as being bullish but the point is that it signals the global economy is in recession already.

Q: Is your point that if Europe slows the US economy slows further?
A: Relatively speaking the US economy is in better shape because of the weak dollar. My view was that after 4 years of underperformance in the US compared to Europe, that the US would now outperform for 3-6 months and I still maintain that. The dollar can continue to rally somewhat as Europe will have to cut interest rates as well, and their economies are most likely much weaker than perceived. On a relative basis, if you put a gun to my head and said you had to buy somewhere it would be in the US.

Q: What about commodities Marc, is this the end of the bull run?
A: We are in a seven year bull market for commodities, so commodities can easily drop 50%. Some have already done that like nickel, lead, and zinc. Others will follow. But after that, I think that the bull market in commodities will reassert itself. But my view was that for the second half of 2008 commodities would go down.

Q: Is there any other currency or stock market that looks good to you?
A: I am not buying US stocks, but I am long the US dollar. Relative performance may not mean that US stocks go up, they may just go down less than others. Where I am long and optimistic is essentially about Japan. And I would be very wary of the favorite trade of the last two years, long commodities, long steel stocks, long iron ore companies, etc.

FYI - From my post May 27, 2008: 

"I have closed most of my commodity longs....The commodity bubble might have more up side, but long commodities and short the US dollar is one of the most crowded trade in the world today.

But eventually the commodity bubble will be popped. The commodity bubble is the last bubble left by the reckless Central Banks monetary inflation and government overspending. When the commodity bubble pops, like the DeathStar explosion, you had better be clear."

abitarecatania (ref: The Upcoming Top Fool Will Be a Commodity BEAR)

Recs 20 May 27, 2008 – Comments (27) | RELATED TICKERS: GLD , OIH , SLV

 

6 Comments – Post Your Own

#1) On August 11, 2008 at 7:31 PM, lquadland10 (< 20) wrote:

Yes Jim Rogers predicted it and he said that the dollar will strengthen and when that happens he will sell the rest of his dollars. It is happening now. As to the alternative energy bubble and infrastructure. This is so The art of war. What better way to get the Nafta super highway built? T.Boone Pickens plan to make us energy independent. Where will this be built? I-35 and probably I-10. This will be a land grab but people will get payed for their land. Imminent domain will be used in the end and we will build the highway to connect Canada USA and Mexico together.  Thus a Democracy and not a Republic move. Yep. Short recession and the next growth boom. I guess Cramer was right when he called this last bottom. Finally. I guess if you call it often enough you will be right. Banks won again.  Oh and then we will have to rebuild Georgia Iraq Afghanistan Pakistan Iran and what other country's that have not serviced yet.  But if we have WW III comedies will be needed to build more plains trains to move the stuff oil to run the war and what not. Ech.....what a choice.

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#2) On August 11, 2008 at 7:35 PM, Varchild2008 (85.88) wrote:

I don't agree with being bearish on Steel Stocks. 

I can't vouch for all steel stocks but these stocks provide great dividends, at their peaks reach great stock price appreciation, and that's not going away.  It's not because there's still global conflicts, wars, U.S. infrastructure expansion throughout the world, emerging markets expanding, automobiles are expanding in sales in China and India and other areas, and so much more...

There will never be a time where Profit Margins, Revenue, Income, or Sales contracts 50% to justify any 50% dip in share price.

Example:  (SID)  At it's peak about $52 a share this year.
A 50% contraction in share price is $26 a share.

If this stock ever falls to $26 a share I think everyone and their grandma will open their wallets/purses and pour every penny, nickel, and dime into SID.

Do the same MATH for X (U.S. Steel) or NUE (Nucor) or etc.
Ever since MTL suffered a massive loss from $58 to $19 that stock has been on fire, going up.

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#3) On August 11, 2008 at 7:45 PM, abitare (35.12) wrote:

lquadland10,

Great videos. I think Russia and the current administration likes high oil.  I hope this thing in GA passes quickly...

Varchild2008,

Good to hear from you. There is a commodity bubble and there is demand destruction from the global recession. The world is over built, the demand will die with the recession, UNLESS there is a greater expansion of the war. 

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#4) On August 12, 2008 at 1:24 AM, jahbu (85.21) wrote:

dollar bubble, they can only hide it for so long.  This fella wants the dollar to rise one last time so he can buy more commodities with worthless paper.

The last 8 years of US policy = the monopoly card GO BACK THREE PLACES.

If we do not have World War III enduced by the nuts in Washington, something has to put people back to work besides making tanks and ammo.

 At some point they will have to induce another bubble.  Probably infrastructure and clean energy.  Gotta put people to work.  Guess what is used?  Commodities.

This is a buying opportunity in commodities for the next 3 months.  Marc Faber knows it. 

Can you imagine having one last opportunity to buy ounces of gold for 500 bucks?  This is how wealth is made.

Maybe I am just looking to far ahead, but these guys running the show have been using bubbles for the last 20 years.  Why wont they do it again?  We have to come out of this recession somehow.  If not, we are all screwed.  US economy down, stocks down, standard of living down, and dollar collapse.  We must inflate our way out of this with another bubble and hope it works.  Building better energy infrastructure across the nation just might do it. 

As pissed off as I am at our Country's leaders, I damn sure dont want this great nation to become a third world country or be a part of World War III.

IMHO

Jahbu

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#5) On August 12, 2008 at 6:16 AM, AnomaLee (28.65) wrote:

Coming from Mr. Doom, Boom, and Gloom I was actually eased by his comments. I saw this when it hit the wires. I was going to post it, but I forgot when I was shocked by the current Price/Earnings of every single index. I'm glad you did.
---------------

"This fella wants the dollar to rise one last time so he can buy more commodities with worthless paper."

- jahbu, technically all money is worthless. It only carries a perceived trade value established by a government. If people want to continue harpooning the dollar and cheer for the rest of the world (especially Asia) I ask that you peek at the balance sheets of China OR Japan. If the U.S. dollar were Kleenex then their money should relatively equal toilet paper.

lquadland10

It's nice to see that video of Eric Janzsen(iTulip.com) but I think he's seeing years into the future. No bubble in the history of the human race has existed without government support or legislation. (Tulips --> South Sea Company --> Trains --> Technology --> Real Estate )

We are nowhere close to seeing a bubble in alternative energy until there is further legislation globally to support it 

If you believe the global economy is contracting than the easiest trade is to simply trade contraction. I've been one of many who've seen their CAPs portfolios sink with commodities. Thankfully, MRL portfolio is up due to my large position in EEV, and the fact that I sold all my energy(coal) positions in June. I will maintain my relatively small position in SLV and EXK for the foreseeable future and stay mostly cash and short.

**My favorite commodity stocks are TCK and SQM for the foreseeable future in which I'm looking for entry positions.

I'm not too worried. I believe this is simply another correction in this long-term bull run, but I've never been a gold bug because I think it's weird. It's shown that a great commodity bull market can last over 13 years. Global growth is not a given, but the demand to buid on infrastructure domestically and globally is too great to ignore. There's less the U.S. can do to stem growth in China and key emerging economies, so we can breathe easier today until we reach a very severe oil crisis a few years from now  :)

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#6) On August 13, 2008 at 10:32 PM, lquadland10 (< 20) wrote:

AnomaLee As you can tell I am a more of a buy and hold kind of gal thus I get attached to my stocks and yes I know that is not good. For trading I like to add more as the stocks go down for my retirement account. I look for stocks that will be around for the next 30 years. Caps is teaching me how to trade without money and finding my style. I need to trade more in caps. Alt energy bubble yes but it will take 20 30 years now. I look at Pickens plan and guess what? Follows highways and he quietly said the land would be bought and paid for but to my way of thinking is the old rail road 1800's land grab and because we are no longer a republic but a democracy it will go through. (The courts will use imminent domain for the good of the country. The majority rules and the rights of the individual will loose.)  Also know as the Nafta super highway. Connect Mexico USA and Canada.May be may be not but only time will tell. With Trillions at stake you bet it will go through. You will also need wind energy supplies that go with that and rails to transport the parts for the wind farm. Steel cable concrete and what not for the transportation of the electricity and the building of the highway. P.S. While congress went on vacation pres. bush extended the ties with Mexico and extended the Mexico truckers to drive throughout the USA for 3 more years. Even though the courts said no. Personally I love the stock of comedies being so low right now because if I am going to loose my country I want to be able to have some money to be able to move around the new one. [There's less the U.S. can do to stem growth in China and key emerging economies, so we can breathe easier today until we reach a very severe oil crisis a few years from now  :) ] Would WW lll slow the growth and get rid of a few people the way Rockefeller Sr. wants? Look into PBR for a good entry point. Also the solar stocks.I do agree with you. Yea gold is weird and that being said I made money up and down with it. Thanks for the stock tips and fool on. LQ.   : )

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