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Sep 09, 2010, 09.08 AM IST
In an exclusive interview with CNBC-TV18 Marc Faber, Editor and Publisher of the Gloom, Boom and Doom Report said that the markets may go down in October and then rally again towards the end of the year.
Economies globally are not doing too well and it is very likely that there will be more monetary easing and further stimulus packages. In an exclusive interview with CNBC-TV18ís Udayan Mukherjee, Faber says markets may not be happy with additional stimulus. Also, he says geographical concerns are likely to lead to this correction and thus advices investment in physical gold.
On the local footing, he sees Sensex easily going down 10-20% on the back of huge volatility being witnessed.
Here is the verbatim transcript of his interview. Also watch the accompanying video.
Q: How do you read the next two-three months for global equities, is it going to be period of turbulence or do you think liquidity will smoothen out the rough edges?
A: I think that there are people who have extreme views either extremely bullish or extremely bearish. I think we maybe in a kind of a trading range whereby first we go down somewhat into October-November and then rally again towards the end of the year.
I think the difficulty is what to do with money when interest rates are essentially at zero on US dollar then obviously people look at their portfolios and they see stocks that have dividend yields. In Singapore, Thailand, Malaysia, you can have stocks yielding 5% on the dividend. So, the money flows essentially into these stocks.
Q: When you say a difficult patch in October-November, do you see those S&P levels of 1,040-1,050 being violated or more or less the market to fine support around those kinds of levels?
A: We have touched 1,010 at the low point and we trade it several times around 1,040. Though there is some support there, but I wouldnít bet that itís not going to be broken on the downside. 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. I am not sure that the stock market will take that well, maybe the stock market wonít be very happy about additional stimulus, more interventions into the free market. Though anything could happen, but letís put it this way that I do not think that we will go and breakdown below the March 2009 level. I think that may have seen a major low and that we will be in a kind of a trading range around this level we are at here.
Q: You think the most important trigger would be what the Fed does based on economic news, it wonít be an event this time around like something coming through from Europe or from the US?
A: I think what is frequently overlooked are geopolitical tension and the relationship between India and China have deteriorated lately. I think we may have geopolitical events that could play a role in valuation of asset. Thatís why I tell people they should have some money in physical gold.
Q: Where does this leave the dollar for the rest of the year because thatís been quite volatile as well? What is your outlook on that?
A: The dollar is a weak currency, but so is the euro. So, I think they will go down both against price of gold let put it this way. But we had a breakout move in gold yesterday and itís important that we continue now on the upside and not that we breakdown again because then that would be a failure and then quite a reaction could follow.
Q: What about crude thatís been showing far greater weakness in the commodity universe, every other day it keeps collapsing down to close to USD 70 per barrel?
A: I think that industrial commodities are not the most desirable. I think the commodities complex, which is most attractive at present time, are agricultural commodity and they should move up further in due course.
The industrial commodities are basically suffering from still relatively weak global demand. If something happens because Chinese economy, not just a minor slowdown, but a more meaningful slowdown then obviously would have a big impact on the demand for industrial commodity.
Q: If you were owning stocks in India today, what would you do?
A: That depends, if all my money is in stocks in India, I would sell or bring down the position meaningfully. But if I have 5% of my global assets in Indian stocks, I would maybe keep them, depending of course which companies I own and how comfortable I feel with these companies. Though the question is how much money do you have in the market, but I think in general people around the world are underweight Indian equities because itís a huge country, billion people and many international portfolios have zero exposure to India.
So, I think that in general if someone has no money in India, I would over a time stimulate Indian shares. As I mentioned to you I think the market technically doesnít look good. We may go down first before we rally further, if at all, maybe we donít even rally as I said maybe we are in a trading range in India between 13,000 and 19,000. But if I had too much exposure in Indian shares I would definitely reduce the position.
Q: Do you see the possibility of the Sensex seeing something like 15,000, forget 13,000, even 15,000 during the course of this calendar year?
A: We have a lot of volatility, so we can easily go down 10-20%, that wouldnít be surprising.
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