Faber, Rogers, Dent and Celente: Collapse Dead Ahead

After a massive upswing in US stocks over the last six months, the recent rally may finally be coming to an end. It seems that the trend of rising stocks on bad or better than expected news may be in a reversal, as evidenced by market participants' caution over the last couple of weeks. For those that follow contrarian investors like Marc Faber, Jim Rogers, Gerald Celente and Harry Dent, this should come as no surprise.

Marc Faber, publisher of the Gloom Boom & Doom Report, advised his subscribers and followers to take positions in US tech stocks, the banking sector and hard assets at the bottom of the markets in early March of 2006. However, he did provide a word of caution on March 16, 2009, making it known that while he was a short-term bull on stocks, that eventually, the economic fundamentals would catch up:

Probably a total collapse in the second half of the year when it becomes clear that the economy is a total disaster.

As recently as September 3rd, on Delhi TV, he made another call, essentially telling investors to get out:

"I believe in the next 10 days to two weeks we’ll get big moves in markets. And I wouldn’t be surprised if the Dollar would for a change strengthen and equity markets would correct and possibly quite meaningfully so."

Gerald Celente, Trends Research forecaster and contrarian thinker, advised listeners of the Jeff Rense show on September 23rd to look out below, calling it the Christmas Crash. He believes that the next collapse will come quickly, sometime this fall, but as late as January or February of 2010:

It’s going to really be an ugly scene. We are really encouraging people now to take pro-active measures and prepare for the worst. Don’t spend an extra dime.

Jim Rogers, who is well known for making millions during the recession and commodities boom of the 1970s, is also hesitant about acquiring more equities. He is an avid US Dollar bear, but in an interview on September 30th, he turned bullish on the dollar in the short term. His advice?

I am not buying shares anywhere in the world as we speak.

Finally, we have economist and cyclical analyst Harry Dent Jr., who some may know for having called the real estate Bubble-Boom, and subsequent crash, years before it happened in his book The Next Great Bubble Boom. Dent was also bullish on the Dow, calling for it to reach between 9450 and 10,500 after the March lows of 2009. Like Faber, Dent also cautioned investors to stay vigilant once the 9000 mark was breached. In a recent Economic Forecast Alert to subscribers, Dent indicated that the tide was changing:

The markets are very overstretched here and we think it is very likely that we are seeing a top just above 9,800 on the Dow today.

This is the best intermediate term play we have seen in a long time. Shorting the stock market (for example, ETF symbol SH) could yield 50% to 60%+ gains over the next year with a 5% to 15% downside if the markets keep edging up for awhile, even to extremes.

Though we continue to see most mainstream analysts talk the bull market talk, it looks as if the bull may be in trouble, especially if individual investors realize what all of the big boys talking their books already know - that the economic fundamentals are simply horrific and the markets are already pricing in GDP growth of over 5% for the next 4 quarters. Considering that GDP grew at 0.7% in the 2nd quarter, that seems highly unlikely. Some estimates also suggest the the P/E of the S&P 500 right now is at unprecedented levels of over 100!

As of today, it looks as if investor focus is shifting from stocks and commodities into what some consider to be short-term safehaven assets, such as US Treasury bills/notes/bonds. The yield on the 10 yr is at 3.15% as of October 2nd, significantly down since August 7th's 3.85%, suggesting that safety, not risk, is now the name of the game. Interestingly, and unlike November of 2008, gold seems to be holding strong at around $1000, though this may change if the US Dollar rises, as Jim Rogers, Faber and Dent have suggested it may.

For those still in equities, we believe Tyler Durdern at Zero Hedge said it best,

Go long here at your peril.

Comments

[Jeez:]

"He said, he said and he said" - Great analysis!

Oct 07 07:38 AM

[redbaron:]

What Jeez said, but he said it better.

Oct 07 07:58 AM

[richjoy403:]

Before you jump off cliff based on this article, I suggest you read it with a critical eye...there is only one significant data point here, it reads "Some estimates also suggest the the P/E of the S&P 500 right now is at unprecedented levels of over 100!"...HORSE PUCKY!

How many places have you read that the market's P/E is 140, or even over 100?

It turns out the source for this claim is an August 11th article by Karl Denninger, his claim actually reads "Home prices are not done going down and the S&P 500 is currently priced at a P/E of 140 - a level never before seen in the index, ever, at any time in American history." NO WHERE IS THERE ANY CONFIRMATION OF HOW, OR WHEN, THIS 140 P/E IS COMPUTED...for example, is it trailing or forward earnings, was it last December, March, or June? Furthermore, Mr. Salvo, perhaps knowing how outrageous such a number is, merely states "some estimates suggest the p/e is over 100".

It is true, the market observers Mr. Salvo cites are (or have been) bearish (in some cases for maybe 3,000 Dow points).

For Mr. Salvo to include such an outrageous data point to buttress his argument throws a cloud of suspicion over the author's credibility.

Certainly caution is advisable; the market has come a long way up on little more that a trend of improving data points. If 3rd quarter earnings do not justify the favorable assumptions of investors, the market will certainly adjust downward.

Limit stops are especially useful at times like these.

Oct 07 08:02 AM

[Dean M:]

I thought Dent was calling for DOW 30,000

"Dent was also bullish on the Dow, calling for it to reach between 9450 and 10,500"

Trying to predict the turn is a suckers game, you could be right 9/10 times but the time you're wrong will wipe you out. Better to be a fast follower.

Oct 07 09:09 AM

[liu:]

S&P500 PE is 116.205 according to: www2.standardandpoors....

Oct 07 09:23 AM

[paulsjj:]

Every week Barrons Magazine reports a PE for the S&P500 in the 130's based an reported earnings. This is in the Indexes and PE's box of their Market Labratory.

Oct 07 10:01 AM

[cyclingscholar:]

<<<For those still in equities, we believe Tyler Durdern at Zero Hedge said it best,

Go long here at your peril.>>>

Can't even spell the guys name right. Since spellcheckin' is beyond your Ken, I wonder about the rest of your analysis.

Oct 07 11:42 AM

[richjoy403:]

liu -- You are correct (and I stand corrected), for the 1ST QUARTER 2009, S&P reports the P/E at 116.205.

Oct 07 01:29 PM

[conceptwizard:]

Fed chief Ben Bernanke is in a bit of a bind. He's being asked to restore a system for credit expansion which collapsed more than two years ago and has shown no sign of life ever since. During the boom years, securitization accounted for more than 40 percent of the credit flowing into the economy. No more. When two Bear Stearns hedge funds defaulted in July 2007, the system crashed as investors of all stripes backed away from complex, illiquid assets. The Fed's TALF lending facility--which provides up to 94% government funding for investors who are willing to purchase bundled debt for credit cards, mortgages, auto loans and student loans--was intended to breathe new life into securitization, but has fallen woefully short of its original objectives. It pretty much fizzled on the launching pad. Even the shrewdest hedge fund sharpie couldn't figure out how to make money on (what amounts to) fetid assets.

This is the system that Bernanke is trying to electroshock back into consciousness, albeit with negligible results. The Fed is essentially pumping blood into a corpse hoping for some fleeting sign of life. But dead is dead. Capitalism requires capital. This is the disturbing truth behind securitization--which was not developed to allocate resources to productive activity more efficiently--but to allow credit expansion on smaller and smaller chunks of capital, further enriching a handful of well-connected speculators. This is the sole function of off-balance sheets operations and unregulated derivatives--to conceal the abysmal lack of capital that supports the debt. When trillions of dollars in complex debt-instruments, derivatives contracts, and loans to unqualified applicants are stacked atop a tiny scrap of capital, disaster is inevitable.

Oct 07 06:09 PM

[Mark Bern:]

ConceptWizard - Excellent comment! My sentiments exactly! I've read recently that the official reason that the PPIP is not happening is that those toxic assets that had been priced by the market at a mere 20 cents on the dollar are now valued at 70 cents. Of course, the operative word there is "valued." It seems to indicate that they are trading at that value but I suspect what they mean is than banks are now using their own proprietary pricing models to "value" their assets and have come up with 70 cents. If they all tried to sell those same assets in the market, I also suspect that the true market value would something far less than that at which the assets are being carried on their books.

In other words, the problem isn't solved, it's just been swept temporarily under the rug.

Oct 07 06:39 PM

[untrusting ...:]

Mark,
Just saw a news report/mini-documentary by a Manhattan commercial real estate broker yesterday. He walked around Manhattan/NY and pointed out all the vacant office buildings and shut-down commercial property developments. He pointed to a skyscraper and noted they had sold it 2 years for $1.7 billion with 1% down. It was defaulted on (of course) and was just resold for $600 million and it is 50% vacant. That's a 66% decline in commercial real estate prices for high quality commercial real estate in 2 years. He further pointed out they have very extensive CRE tracking systems and he estimates CRE defaults/bankruptcies will exceed $1trillion over the next 2 years. He also mentioned that some CRE in Florida is now selling for 10-15 cents on the dollar.

So you can bet on one thing, CRE ain't worth anywhere near 70% if that is the fantasy value banks are carrying it at now.
On Oct 07 06:39 PM Mark Bern wrote:

> ConceptWizard - Excellent comment! My sentiments exactly! I've read
> recently that the official reason that the PPIP is not happening
> is that those toxic assets that had been priced by the market at
> a mere 20 cents on the dollar are now valued at 70 cents. Of course,
> the operative word there is "valued." It seems to indicate that they
> are trading at that value but I suspect what they mean is than banks
> are now using their own proprietary pricing models to "value" their
> assets and have come up with 70 cents. If they all tried to sell
> those same assets in the market, I also suspect that the true market
> value would something far less than that at which the assets are
> being carried on their books.
>
> In other words, the problem isn't solved, it's just been swept temporarily
> under the rug.

Oct 07 07:35 PM

[Michael Clark:]

The last three comments on this page are all very interesting.

Nov 08 11:25 AM

[Michael Clark:]

What do you mean saying Karl Denninger made up this datapoint and is lying about it? Read this from the Standard and Poors webpage.

www2.standardandpoors....

Read this:
S&P 500 Statistics
As of October 30, 2009

Total Market Value ($ Billion) 9,124
Mean Market Value ($ Million) 18,248
Median Market Value ($ Million) 7,635
Weighted Ave. Market Value ($ Million) 75,767
Largest Cos. Market Value ($ Million) 344,431
Smallest Cos. Market Value ($ Million) 642
Median Share Price ($) 31.800
P/E Ratio* 137.98 <------------------...
Indicated Dividend Yield (%) 2.09
NM - Not Meaningful

*Based on As Reported Earnings.

I think you owe Karl an apology.


On Oct 07 08:02 AM richjoy403 wrote:

> Before you jump off cliff based on this article, I suggest you read
> it with a critical eye...there is only one significant data point
> here, it reads "Some estimates also suggest the the P/E of the S&amp;P
> 500 right now is at unprecedented levels of over 100!"...HORSE PUCKY!
>
>
> How many places have you read that the market's P/E is 140, or even
> over 100?
>
> It turns out the source for this claim is an August 11th article
> by Karl Denninger, his claim actually reads "Home prices are not
> done going down and the S&amp;P 500 is currently priced at a P/E
> of 140 - a level never before seen in the index, ever, at any time
> in American history." NO WHERE IS THERE ANY CONFIRMATION OF HOW,
> OR WHEN, THIS 140 P/E IS COMPUTED...for example, is it trailing or
> forward earnings, was it last December, March, or June? Furthermore,
> Mr. Salvo, perhaps knowing how outrageous such a number is, merely
> states "some estimates suggest the p/e is over 100".
>
> It is true, the market observers Mr. Salvo cites are (or have been)
> bearish (in some cases for maybe 3,000 Dow points).
>
> For Mr. Salvo to include such an outrageous data point to buttress
> his argument throws a cloud of suspicion over the author's credibility.
>
>
> Certainly caution is advisable; the market has come a long way up
> on little more that a trend of improving data points. If 3rd quarter
> earnings do not justify the favorable assumptions of investors, the
> market will certainly adjust downward.
>
> Limit stops are especially useful at times like these.

Nov 08 11:27 AM