Friday, November 19, 2010

We Are Short & Marc Faber Agrees

Shorts were triggered when the YM dipped below the trigger price earlier. I am fully expecting this to be a long term hold short. It looks like guru Marc Faber agrees with the position. The following is a short piece I did for a research firm on faber, gurus and their broken clock way of being right.

Marc Faber: Broken Clock Guru Or Market Wizard?

Every crisis in America seems to push another financial guru to the forefront. Everyone from WD Gann & Jessie Livermore to Robert Prechter & Jim Rogers have had their moments being heralded as the present day Nostradamus of the stock market. The funny thing is, these gurus are only recognized when their calls are correct. For example, Prechter has been saying the same thing for so long, the ever changing cycles of the stock market are sure to prove him right at one time or another. When he nails a prediction, he gets tons of financial press, and then when wrong he quietly fades off into the background. Jim Rogers, although someone who has my utmost respect, is another guru who has been saying the same thing for many, many years. His mantra of buy commodities looks like it has finally proven itself correct. The current poster boy for financial gurus is Marc Faber. Faber is an uber intelligent economist, fund manager and financial newsletter writer. His Gloom, Doom and Boom report has become hugely popular recently due to a series of correct macro calls on the economy. Is this just another example of a broken clock guru having his day in the sun, or does he have exceptional insight into our economic future? Well, let's take a look at the facts.

The first thing to ask when evaluating the potential worth of any financial guru is, does this person manage money? While actually being in the fund management trenches ads credibility and distinguishes one in a positive way from the thousands of empty suit talking heads with nothing on the line, you always need to keep in mind that these money managing gurus may be talking their book. This means they are subtlety or not so subtlety promoting their positions. Jim Roger's commodity bullishness is an example of this talking of his book. Marc Faber manages money and acts as an advisor to several funds. Is he "talking his book"? I don't know, but its important to keep in mind these inherent biases when money managers become gurus.

The next thing to look at is the guru's track record. Marc Faber's track record has been uncannily accurate, save for a few major mistakes. He correctly called the run up in gold, the Federal bail out, and oil price surge. However, a call he made in 2007 on CNBC when he said that if the Fed cuts rates from 5% to 0, the DJIA would rocket to 50,000 and the US dollar would become worthless. Well, he couldn't have been more wrong. The DJIA dropped by over 50% and the US dollar rocketed higher by 20% during the interest rate cuts.

Is Marc Faber correct with his current call of a big drop in the stock market and a bubble in commodities and gold? Is he a broken clock guru or a true market wizard? We will know the answer in the fullness of time.

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