Stocks are up big to start 2013 but Marc Faber, Editor & Publisher of the Gloom, Boom & Doom Report, says it ends in tears.
"Either the market is going to correct more meaningfully now or we have a shallow correction and a continuously rising market until July or August," Faber told me via phone from Thailand. If stocks don't pullback soon, he says we risk a repeat of 1987 when stocks rallied 40% into summer only to collapse 41% in 2 months.
"In March of 2009 everything looked horrible, now nobody can find a reason why stocks could go down," Faber claims. "We ask that you should buy stocks when everything looks horrible, you shouldn't rush to buy them when everything looks perfect."
The problem is that it's hard to find anyone claiming the environment is perfect. Even the theme running under the reports of "the masses" buying stocks is that it's a cue to sell, not buy.
Analysts are looking for almost no corporate earnings growth in the current quarter and not much better than that for the balance of the year. The idea that Fed money printing is supporting assets may be true, but the FOMC has given clear guidelines on when the printing will stop. When inflation (as measured) rises past 2% or unemployment falls below 6.5% the Fed will raise rates.
Even if you think the Fed is wrong, there's no basis for calling them liars. A surprise end to Quantitative Easing isn't on the table. It's hard to make much of a case for ebullience beyond the fact of stocks much-hyped journey toward all-time highs.
So what's an investor to do? Faber says it's a matter of allocation and perspective. Stocks have gone very far in a relatively short amount of time. If you caught the rally, he says it's time to trim but not bail out entirely. If you're a Johnny-come-lately to stocks, you're too late as he sees it.
"If you have 100% of your money in equities and you just bought them now, maybe you should reassess your position," says Faber.
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Good morning and welcome back to our rolling coverage of the eurozone crisis and other global economic events.
This morning all eyes are on eurozone GDP, which is expected to show the region dropping deeper into recession in the final quarter of 2012.
We've already had figures out from Germany, which show the economy contracted more than feared, as exports declined. German GDP dropped 0.6% in the fourth quarter, compared with expectations of a 0.5% decline.
That is a big swing from the 0.2% growth the German economy recorded in the third quarter. And it is the deepest contraction since the height of the global financial crisis in 2009. The German statistics office said:
Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year: in the final quarter 2012 exports of goods declined significantly more than imports of goods.
But analysts remained relatively upbeat about the outlook for Europe's largest economy. Carsten Brzeski of ING said:
With increased uncertainty stemming from the euro crisis and the global economy cooling in the second half of the year, the German economy has finally lost its invincibility. Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly.
New revelations about the extent of the tensions between the EU and the IMF.
Speaking on Greek news channels this morning, the economist Iannis Varoufakis said that officials at the IMF told him that in order to justify their participation in the bailout programme they used the wrong fiscal multiplier on purpose when calculating the terms of the Greek MoU. He suggested that powerful countries contributing to the fund have been putting pressure on the IMF to admit the mistake because it is now so blatantly obvious that the affects of the crippling austerity measures in Greece are in no-one’s interest.
The EU on the other hand are determined not to rock the boat before the German elections by admitting to a faulty policy that will inevitably lead to a huge debt write down (this time it will actually affect the ECB and large bond holders). Hence Oli Rehn’s statement yesterday that they don’t care what ‘mistakes’ have been made – the Greeks have to abide by the terms of the MoU.
Question: where does this leave the Greek people? How long can they carry on making such huge sacrifices to honour their commitments to a faulty fiscal programme which is ruining the lives of millions and driving the Greek economy into a depression of surreal proportions?
Meanwhile, the European Commission is preparing to unveil its so-called Robin Hood tax today.
This is the international levy on financial trades to be collected by the eurozone’s biggest economies, which aims to raise an estimated €30bn-€35bn a year. But it faces fierce opposition from the US, as well as the UK and Luxembourg, which rejected the tax.
The FT's Alex Barker and James Politi report:
Wall Street and US businesses have attacked a proposed eurozone financial transaction tax, claiming it overreaches borders, flouts international treaties and “breaks the bonds that bind our global economy”.
This tax blueprint, first reported in the Financial Times, includes tough anti-avoidance measures that would catch some trades executed in New York, London, or Hong Kong – even when no eurozone entity is buying or selling the product.
While the commission is confident the plan is legally sound, the long arm of the levy has raised the hackles of big investment banks, as well as the UK and Luxembourg, which rejected such an EU wide tax.
If France, Germany and nine other states press ahead with a tax based on the commission’s expansive proposal, it is likely to be challenged by some EU governments and big financial groups, according to several diplomats and lawyers.
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