Marc Faber Turns Bullish on U.S. Large Caps

MarketWatch has noted that famed contrarian investor, Marc Faber (whose writings I regularly read), has shifted to favoring U.S. large cap stocks over emerging market equities.

He reasons that U.S. consumers may continue to spend despite a weakening housing market for the following reasons:

  • The Fed won’t allow the housing market to collapse and will provide as much liquidity as needed.
  • Home equity withdrawals continue to be popular.
  • Employment is high and wages are rising.
  • Falling commodity prices will put downward pressure on consumer prices.

Based on this, Faber goes on to say:

Whereas I am very negative in the long run, and I believe that the U.S. economic imbalances are not sustainable, for the next few months the investment community is too negative on the U.S. economy which is more likely to surprise to the upside than the downside.

The current global economic cycle is growing old by historical standards and there are signs of a slowdown. Therefore, Faber believes speculative buying in commodity and emerging markets which caused them to outperform U.S. equities, may reverse as investors sell off high-risk stocks and seek the safety of U.S. large caps.

Faber also likes tech stocks because technology has underperformed for several years now and “near-term money could shift out of oil and resource stocks and into tech stocks significantly.”

I should point out that this is just his outlook for the next few months and longer-term he remains very much bearish on the U.S. economy and the stock market:

I don’t think there is an option but to print money in the long run. If debt growth doesn’t continue to accelerate then the whole system collapses; my view is that we are going to see inflation rates in future that are beyond your imagination and in this environment.

I agree with his long-term view and feel owning gold and shorting stocks will be the most profitable strategy in such a scenario.

While Faber’s short-term bullishness on stocks could prove to be correct, I am not a trader and do not try to time the markets. The bottom line is that the U.S. is due for a recession and stocks are overvalued.

If the markets continue to rally I will increase my shorts. I don’t know when stocks will fall, but I am confident that a short position in a general basket of stocks today will turn out to be very profitable 12-24 months down the road.