I won't be too critical of him because when I listen to what he says, some of his points can be misinterpreted. I can see that because he clarifies his position later. He is open to the prospect of the market going lower. I don't see that. Fear grips the early phase of the market. Are things going to get worse? Certainly. There will be higher unemployment, a slowing of output, but I would argue we are going to see a rise in inflation, and not so much a fall in asset prices. Why? Because the 'fear phase' is over and yields are compellingly good. We are now experiencing a recovery, which will quickly be exhausted in the wake of bad news from the real economy. We will then have erosion of yields by higher prices. So I don't agree that 'we are a long way from the bottom', but rather than we will avoid a significant fall as a result of fiscal stimulus, and that stimulus will end up keeping us in recession longer than we would otherwise have to be.
The lesson investors need to learn is to trade stocks from lows, and when to sell. They need an education in technical analysis. He suggests that the 'best thing for the government to do is nothing'. I disagree with that, though I agree that the government should have avoided this by prudent debt management. He actually suggested he was very negative on the commodity countries like Australia and NZ, so I'm inclined to think he does not appreciate the merits of these countries. Assets in these markets have been severely sold down, and offer very good buying at a time when the currency is so low. Commodity exporters are generating good revenues based on prices denominated in USD. That is a wonderful paradigm in a consolidating market.
I disagree with his point that the US will fare better than emerging markets. He argues that the US does not produce anything, so it will not be hurt so much, but the reality is that the US produces a lot of high value, discretionary product, and anyway, it has investments abroad in similar 'lower value' capacity. True, the Middle East will be worse off because their currencies are pegged to the USD. But Australia and NZ will be better off because they are not pegged. Aside from the protection provided by their weaker currencies, Australia particularly has low levels of government debt compared to the USA. Contrary to Marc Faber, I see Australia and NZ faring far better, particularly Australia. He did not mention Japan, but one could argue that Japan is well-positioned to recover from any global recession because its been subdued by no credit bubble for the last 19 years. It does need to engage in reform, and its still hard to see that happening. But these are otherwise painless markets to invest in. South Africa will also fare better.
Andrew Sheldon www.sheldonthinks.com