What does Marc Faber think of the markets now?

Famous contrarian investor Marc Faber has shared his views on where the stock markets are going in 2014 in an interview with CNBC on Dec 19. The key summary:

•  The S&P 500 won’t surpass its November 19, 2013, high of 1,813. We know that the S&P has since surpassed its high of 1813.
• Shares, Twitter, Netflix, and Veeva Systems are “grossly overvalued,” and shorting a basket of these stocks will return at least 30 percent next year. I do believe that US stocks is overvalued. That is why I am shorting Twitter. It remains to be seen, however, if this pans out.
•  Physical precious metals, gold shares, and Vietnamese stocks are “buys”. I am not so sure about this. Normally, a rising interest rate and strong US-dollar environment is not good for gold

Let's see out of the remaining two predictions. Which one/s will Faber get right?

Sell US and buy Japan/ Europe

Recently, some contrarian analysts have written about the possibility that US equities bull run may be coming to an end. At the other end of the spectrum, recently battered stocks in Japan and Europe could find favour amongst investors. This is due to:

• US stocks expensive on valuations basis. Its Shiller PE is 24 times versus 16.4 historical.
• Tapering could dim shine of US equities. Normally, equities didn't perform for weeks or months after that.  
• Japanese stocks have earnings growth
• Valuations are cheaper than US
• Accomodative monetary policies driving Japanese equity prices
• European stocks (particularly Germany, Italy, France) trading at discount to US competitors

Some of the names bandied about are: BMW, Daimler AG, Volkswagen, Total SA Toyota, Suzuki, Fuji Heavy Industries, East Japan Railway the likes... Time to check these out

Why I short Twitter

Twitter has almost tripled in price since its IPO since November, so why I am shorting this overly bullish stock? That is because I smell blood in the coming days ahead:

• The Dow is very overbought. It is a matter of time that a correction comes.
• Twitter is overvalued. Once the Dow "crashes", Twitter will go down very fast with it.
• There are high expectations of Twitter's earnings at the end of the month. Any disappointment, it will crash
• It seems analysts are bent on sending the stock lower with more "sell" each passing day
• Feb could see a bout of selling following employees ability to sell shares from Feb 15 onwards
• From May 6, senior personnel in the company could sell shares in Twitter 

Bearing these in mind, I will progressively sell Twitter shares, starting at $65.00

New Year Resolution

In 2010, my ROI was 40% on very limited capital. In 2011, 30% on still limited capital. In 2012, 100% on same limited capital. 2013, it fell to 40% still on same capital. Not good enough, it has to be way better.

For 2014, I have set an ROI target of 100% on a now expanded capital base.

My first trade for 2014 is long GOME. This quiet performer on HKSE has been on an uptrend since Sep last year, and has been picked up by T3b system. Will be staying with this trade till later this month at least.

My second trade is short Twitter. I am taking a huge risk by going countertrend on Twitter. However, I believe it will pay off. I will talk more about it in my next article.