When Gurus Speak

Posted by Kris | Wednesday, April 08, 2009 | , | 0 comments »

Recently, the news kept on highlighting various financial and stock gurus view on the current stock market rally. It is interesting to hear out their views which is usually on the long term horizons.

MARC FABER: Gloom, Boom & Doom 

April 7 (Bloomberg) -- Marc Faber, the investor who recommended buying U.S. stocks before the steepest rally in more than 70 years, said the Standard & Poor’s 500 Index may drop as much as 10 percent before resuming gains.

The measure may decline to about 750 and rebound after July, Faber, 63, said in a Bloomberg Television interview in Singapore. Global stock markets are unlikely to fall below their October and November lows, he said.

“We need some kind of correction, maybe around 5 to 10 percent, and after that we can maybe rally more into July,” said Faber, the publisher of theGloom, Boom & Doom report. “The economic news, while it won’t be good, the rate of getting worse will slow down.”

The S&P has rallied 25 percent from a 12-year low since March 9, when Faber advised investors to buy U.S. stocks, saying government actions will boost shares. Asian equities are among the best bets for global investors because they are attractively valued and will benefit the most from a global economic rebound, Faber said.

He told investors to abandon U.S. stocks a week before 1987’s so-called Black Monday crash and said in August 2007 that U.S. shares were entering a bear market. The S&P 500 peaked two months later before retreating as much as 57 percent.

Commodities, Banks

Faber said he bought some commodity producers in November and is now less “interested” in these companies after some stocks more than doubled. He is also buying some bank stocks and predicted that Citigroup Inc. shares could “easily rebound” to around $5 from $2.72 currently.

“The rebound potential for some of these banks and financial institutions is quite high,” Faber said.

George Soros, the billionaire hedge-fund manager who made money last year while most peers suffered losses, is less optimistic, saying the banking system is “seriously underwater” with banks on “life support.”

The four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still contracting and there’s a risk the U.S. falls into a depression, Soros also said in a Bloomberg Television interview yesterday.

Citigroup lowered its rating on U.S. equities to “underweight” from “neutral,” saying the rally is set to end and the market’s valuations are less attractive, strategists led by London-based Robert Buckland said in a report yesterday.

S&P 500 futures expiring in June were unchanged at 830.40 at 12:35 p.m. in Singapore.

‘Better Value’

In Asia, stocks offer “much better value” than U.S. shares, and investors should seize the opportunity to buy the region’s equities on “every setback,” Faber said. Japanese stocks also “look interesting,” he added.

“If you buy Asian equities in the next three months, over the next five to 10 years, for sure you will make money,” he said. “Asian exporting countries will benefit the most from an expansion when it happens.”

Faber is less favorable on bonds, saying they are entering a “long-term bear market” that can last for the next 15 years to 20 years.

Investors should also diversify into the currencies of Canada, Australia and Singapore because in the U.S. dollar “may weaken somewhat,” he added. The dollar has strengthened against all of the so-called Group of 10 currencies except the yen in the last 12 months, according to data tracked by Bloomberg.

Faber still advises investors to buy gold even though the precious metal is going to be “dead money” in the next three to six months. He plans to buy more gold if prices drop to between $750 and $800 an ounce, he added. Prices retreated yesterday to $872.8, the lowest in more than two months.

George Soros : The Man Who Broke The Bank Of England

April 7 (Bloomberg) -- George Soros, the billionaire hedge- fund manager who made money last year while most peers suffered losses, said the four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still shrinking.

“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

The Standard & Poor’s 500 Index of largest U.S. companies has climbed 21 percent since March 9 on optimism the worst of the 16-month U.S. recession is over. The economy continues to contract, and there’s a risk the U.S. falls into a depression, Soros said.

“As long as we deal with this in a multilateral and more or less coordinated way, I think we’ll get through,” said Soros, whose Quantum Endowment Fundrose 8 percent last year, compared with the average 19 percent decline of hedge funds tracked by Chicago-based Hedge Fund Research Inc.

Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom and Doom Report, said in a separate Bloomberg TV interview today that the S&P 500 may drop as much as 10 percent before resuming gains.

Views on Obama

Soros gave a mostly positive review of the President Barack Obama’s administration.

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009). “Unfortunately, there’s just a little bit too much continuity with the previous administration.”

Soros said the U.S. housing market hasn’t bottomed, even as transactions in states such as California have increased.

“There are some signs of hitting bottom, but we are not there yet,” he said. “A lot has been done to forestall foreclosures.”

U.S. stocks declined for the first time in five days yesterday on concern that government measures to shore up banks may not help as much as estimated by analysts and loan losses will exceed levels from the Great Depression. The S&P 500 today fell 2.4 percent to 815.55, adding to yesterday’s 0.83 percent drop.

‘Zombie’ Banks

Soros said the banking system is “seriously under water” with banks on “life support.”

“They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”

Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.

“This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.”

The Financial Accounting Standards Board relaxed so-called mark-to-market rules last week, allowing banks to use “significant” judgment in gauging prices of some investments on their books. While analysts said the measure may reduce writedowns and boost net income, investor advocates and accounting-industry groups said it will help financial institutions hide their true health.

Bank Nationalization

The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”

Money being injected into banks under government rescue programs should be used to finance new lending, according to Soros. He said he participated inHSBC Holdings Plc’s rights offer, which raised about $19.1 billion.

Soros’s firm oversees $21 billion. Its Quantum Endowment Fund rose 5.2 percent this year through February, data compiled by Bloomberg show. Soros ranked last year as the industry’s fourth-highest paid hedge fund manager, earning about $1.1 billion, according to Institutional Investor’s Alpha magazine.

Hedge funds should be regulated like other financial firms, Soros said. It would be appropriate for authorities to monitor positions to see whether managers have “excessive exposure,” he said.

Hedge-Fund Regulation

The Group of 20 leaders said last week they would extend oversight to all financial institutions deemed vital to global financial stability, including “systemically important” hedge funds. U.S. Treasury Secretary Timothy Geithner said last month he wants to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time.

“The hedge funds that have used excessive leverage have actually failed or are on the way out, so I don’t think this is going to do any damage or hurt the hedge funds except for the fact that they have to fill out more forms,” Soros said.

“Recognizing that markets are inherently unstable does require a different kind of regulation than we had in the past,” he said.

Soros Fund Management LLC was fined 489 million forint ($2.2 million) last month for attempting to manipulate the share price of OTP Bank Nyrt., Hungary’s largest bank, the country’s financial regulator said.

Hungarian Ruling

The Soros fund attempted on Oct. 9 to “send out false or misleading signals about a security’s supply and demand or its share price” and short sold OTP shares, the regulator, known as PSZAF, said in a statement late yesterday. The short selling caused the shares to drop 14 percent in the final 30 minutes of trade, the regulator said. Soros apologized for the trade and said the fund had started an internal investigation.

Hungarian-born Soros gained fame in the 1990s when he broke the Bank of England’s defense of the pound and drove the currency from Europe’s system of linked exchange rates. He also successfully bet that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and Japanese stocks would start to fall in the same year.

Soros said China’s economic growth will accelerate before the end of the year.

“They have a pretty big stimulus package,” he said. “They are going to use more, because not being a democracy, the leadership knows that their very survival, the avoidance of social unrest, requires them to generate growth.”

Brazil to China

China’s economy grew 6.8 percent in the fourth quarter from the same period a year earlier, lagging the 9 percent expansion in all of 2008 and 13 percent in 2007. Industrial output growth slowed, forcing thousands of factories to close and leaving about 20 million migrant workers jobless.

Brazil’s economy will resume growth “relatively soon,” helped by Chinese demand for iron ore and soybeans, Soros said.

“I think Brazil actually, together with China, will be among the recovering countries,” he said. “The outlook for Brazil is better than for most other countries.”

Richard Russell: Bear Market Will Last Longer, Go Deeper Than People Expect

Investors and market watchers from all over the world gathered in San Diego last weekend to honor Richard Russell, who has been writing Dow Theory Letters for 50 years.

The evening was filled with warm tidings and cheerful tributes, but not when it came to the market.

As in the accompanying video, Russell pulled no punches when he was (inevitably) asked for his views on the market: "This bear market will be deeper and longer than most people think," said the legendary market watcher. "People got optimistic too quick" about the recent rally, which he says is doomed to fail. "None of the characteristics of a major bottom" are evident, most notably dirt cheap valuations.

Russell's recommendation: "Stay on the sidelines," in cash or gold, the multi-year rally in which won't end until there's a "speculative explosion" in the metal, he says.

Those familiar his work would expect nothing less from Russell.

But the evening was really more about Russell's life, about the people he's inspired - including newsletter writers John Mauldin (the evening's MC), Bill BonnerPeter EliadesBob Prechter and Burt Dohmen, among many others - and the hardships he's survived, including the Great Depression, the Battle of Normandy, a heart attack, a stroke, and a motorcycle accident.

Russell also talked about the amazing things he's seen in his lifetime, including a home run by Babe Ruth at Yankee Stadium, the construction of the Empire State Building,  a young Frank Sinatra playing with the Tommy Dorsey Orchestra, and about how far America has come since jazz great Roy Eldridge made headlines playing with white musicians like Artie Shaw.

So in the end, it was very much an uplifting evening, one in which I was lucky to attend -- dire market forecasts notwithstanding.