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Sensex may not see a new high for many yrs: Marc Faber

Published on Fri, Sep 12, 2008 at 10:53 | Source : CNBC-TV18

Updated at Wed, Dec 03, 2008 at 18:18

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Marc Faber, Editor and Publisher , The Gloom, Boom & Doom Report

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It's been amazing interplay of asset classes these last few weeks. The dollar has strengthened, crude, commodities have collapsed but equities haven't done very well either with most Asian markets pushing against their 2008 lows. Where will this interplay of asset class go moving forward?

Marc Faber, Editor and Publisher of 'The Gloom, Boom & Doom Report' feels that the Sensex may not see a new high for many years. Crude prices don't have much of an impact on Indian markets, he added.

The S&P 500 could recover 100 points, Faber said. The dollar may correct from here, he feels. It could correct from 1.40 to 1.50 against the euro, he said. According to Faber, new highs in commodities are unlikely anytime soon. One needs to see base building before asset markets recover. The market seems to have discounted recession, Faber added.

Excerpts from CNBC-TV18's exclusive interview with Marc Faber:

Q: Do you expect a bigger slide in commodities from here after what has happened already?

A: We had a contraction of global liquidity ongoing for over a year and not everything falls at the same time. So as equities began to decline last November, commodities still continued to rise and dollar continued to fall. Now commodities and material stocks like steel companies have started to come down. It is like a domino where one asset class tumbles after the other.

Over the last six weeks or so, the dollar has been very strong and commodities have been weakening including gold. Some foreign currencies have been very weak like the New Zealand dollar, Australian dollar, euro, pound sterling. Now the dollar is overbought, the S&P 500 and commodities are oversold and we can have a counter trend rally. In other words, the S&P 500 can recover 100-points or so and the dollar could correct here from 1.40 against the euro to 1.50. The pound could rebound the Australian dollar, New Zealand dollar. At the same time, we can have rally in commodities but new highs in commodities won't happen anytime soon.

The contraction of liquidity in the world will continue. We will need a base building period around this level before we start recovering in asset markets or at worst we will have another major slide in 2009, 2010.

Q: You are saying that the next move for the dollar may not be getting further stronger from here, the dollar could actually weaken. What would it mean for crude then, is it likely that it does not break USD 100 per barrel, go down further and bounces back to USD 115-120 per barrel?

A: It is not the dollar that moves commodities but commodity prices move the dollar. I am not saying that the dollar isn't going to move higher over the next six-nine months. That could be the case if global liquidity tightens and if US trade and current account deficit contract then you will have dollar strengths for the next six-nine months. For the next ten days, US dollar will weaken.

Q: In the past few weeks and months there have been a lot of growth concerns. What is the likelihood that both equities and commodities underperform over the next few months?

A: Most countries I visit are in recession. In other words, growth is still there but it is not as strong as it was a year ago. A lot of countries have negative growth rates at the present time. But, the markets are already down very substantially. India is down from 21,000 to 14,300 or so. So to some extent, the markets have already discounted slower economic growth or a recession. The question is to what extent have they discounted profits that are not going to recover for several years and the market has not discounted that. Having said that when I look at markets in the US and also in Asia, we have reached a relatively oversold condition right now and sentiment is quite negative and the news coming out of the US is very negative. So in general, when the news is very negative, markets can temporary bottom out and rebound. When the news is really bullish, you should be selling, unfortunately in India they forgot that and when the news was very bullish a year ago they kept on buying shares.

Q: When you say that we may not see new highs for commodities in a hurry, is it crude that you are referring to?

A: You may not see a new high for many asset classes including the Indian Sensex for many years. The oil price is unlikely to go up very substantially unless you have a geopolitical confrontation, which is really possible once Mr. McCain is elected in US.

Q: The earlier feeling was that if commodities get into a bear market then equities will get out of theirs. Is it possible that both these markets remain in bear phases?

A: If you look at the direction of asset classes since 2001 and October 2002 then equities and commodities have moved in the same direction. All other asset classes like real estate in developed markets, emerging markets and even bond prices have moved up and that is the very famous Bernanke bubble. You can say Thank You to Bernanke, he has created the greatest bubble in the history of mankind. Now the consequences will be felt and they will be felt for quite some time because credit growth has de-accelerated in an unprecedented fashion and that leads to falling asset prices and recession.

Q: What commodity looks most likely to rebound form here between precious metals, base metals and even what's been happening with crude?

A: A lot of commodities have become oversold because they are down 50% or more in some cases but I don't think a new bull market is getting underway any time soon. Commodity prices will be higher in 2015 because all Central Banks are money printers and they do nothing else but print money. When their economies don't do well, they just go out and print more money and cut interest rates which leads to competitive devaluations. So, if the US dollar is strong then the likelihood is that the Fed will cut interest rates increases and if the US dollar is weak, their hands are tight. If the Australian dollar or the pound sterling is very strong, then the tendency for these Central Banks is to cut interest rates.

At the end of the day, the whole world will end up with interest rates around zero and we will get into a very highly inflationary environment. When everything goes up, the price of TV, bread, and stocks but in real terms the stocks will go down.

Q: What is your view on India? Do you think with crude back to a USD 100 per barrel India has put a bottom in place?

A: Crude price has not much of an impact on the Indian stock market or the Indian property market. When index in India went to over 20,000, we clearly had a bubble and strong earnings. That is de-accelerating but this is not the view of the managers who manage India funds, they are all very bullish. So, this is my view but prices are quite vulnerable on the downside in all emerging markets.