Marc Faber : Investors should have caution after April will come a Slowdown

Marc Faber : "Basically I think that earnings may begin to disappoint. That corporate profit margins could deteriorate. And I think we still have a lot of issues. Don’t forget we have QE1, QE2 and Operation Twist. I think in order to really hold asset prices across the board much more QE3 would have to be gigantic. I’m not ruling out that stocks can continue to go up but I doubt they will go up at the same rate as the first quarter. And if you look at the technical under underpinnings of the market, they have deteriorated. The list of new highs is deteriorating. The short positions are way down. And we have an overbought condition in the market if we measure the number of stocks above the 50-day and 200-day moving average. So, generally I would say maybe April is traditionally still a month of seasonable strength but somewhere in the next six months I think you can buy the whole market much cheaper." - in Bloomberg TV

Marc Faber : I advocate Investments that generate free cash flow

Marc Faber : Well, you see, I’m an advocate of investments that generate free cash flow. In other words, you invest in something and every year you get, after all expenditures, some money in the form of interest payments or in the form of dividends. And that allows you a lot of flexibility because if you have all your money in physical gold or in exploration companies the problem is you have no cash flow. So if let’s say your portfolio drops by 50 percent, you don’t have any money to add to your positions, whereas if you have cash flow, every year some money comes in and you have purchasing power to buy the assets that during that year fell the most or where you think some value is emerging. And I think it is very important to have always cash flow to invest in opportunities. And so I also advocate essentially a diversification. You know, a few weeks ago Mr. Buffett came out and said that gold is unattractive and so forth and several studies will show that stocks over the long run have performed better than gold. I fully agree with this study. It should be clear that the company that generates and pays out dividends over time will perform better than a dead asset like gold. However — and this is a big “However” — I once talked to Jeremy Siegel, he’s written many books about the performance of stocks, in 1800 and so forth. I [said], Jeremy, you start your book on the performance at 1800, are you actually aware that by 1841, the poor man’s recession, most of the canal companies and most of the banks were bankrupt. So if you invested your money in 1800, by 1841 most of it was gone. And this is the point, in equities you have to rebalance your portfolio and in gold you don’t have to do that. It’s a totally different type of asset. You can’t compare it. And the other day, you know, Kodak went bankrupt. I remember in ’72 and ’73 among the 10 most popular stocks among institutions you had Polaroid and Eastman Kodak and both went bust over time and they were disastrous investments. So it’s nice to say the market is going up in the long run by this and that, that I agree, but you have to rebalance the portfolio. And in gold you don’t have to do that. Gold is basically cash that doesn't pay any interest. - in The Financial Sense NewsHour - 06 Apr 2012
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