1. Equity Markets–Faber believes a correction is imminent for the stock market as bullish sentiment (AAII sentiment)nears record levels and mutual fund cash positions remain verylow. Furthermore, the latest upward move in stocks has occurred ondeclining volume, which is usually bearish from a technical point ofview. The correction should occur in January. That being said, youshould be buying into the correction as it represents a good buyingopportunity. Faber prefers energy companies and speculative stocks suchas home builders and even AIG. He goes on to say that the third year ofa Presidential cycle is very good for speculative stocks versustraditional blue chip value plays.
2. Gold and Silver–Reiterates his favorable opinion on gold and silver. Doubts they are currently in a bubble as someanalysts postulate. Faber notes that investor exposure is very low whenyou look you compare it to the world’s financial wealth, meaning thatgold and silver are still under-owned and have room to run.
3. Emerging Markets–While he is very bullish long-term on emerging markets, investors should avoid (or atleast lighten up on) emerging market stocks right now. They should onlybe bought on corrections which would represent favorable entry levels.Overall, Faber thinks the SP 500 will outperform emerging markets in2011. The only emerging market that looks attractive right now isVietnam (VNM).
4. Commodities–On a correction, Faber likes energy companies since the long-term trend in oil is up, as supply fails tokeep up with surging demand from emerging markets. Notes that emergingmarkets have surpassed the developed world in oil consumption and thatthis trend should keep demand strong for the foreseeable future. Faberlikes the majors like Exxon, Hess, and even Chesapeake as natural gas istoo cheap on an inflation adjusted basis. Continuing the energy theme,coal and uranium stocks should be gradually accumulated on weakness asthe world looks for alternative sources of reliable energy. Peabody onthe coal side and Cameco for uranium should outperform over the nextfew years.
5. Bond Market–Reiterates his bearish long-term view on US Treasuries, but notes that they are currently oversold andcould be a good trade at this point (TLT). But this would only be ashort-term bounce as rates have likely bottomed and higher inflationwill erode future returns.
6. Japan Equities–While everyone is still bearish on Japan, Faber likes Japanese equities and thinks they have thepotential for more upside. In particular, he likes Japanesefinancials such as Nomura and Mizuho Financial.
Overall, Faber is pretty bullish on equities despite his prediction of a short-term pullback in January.
Happy New Year!
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