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Marc Faber: Why I’ve Changed My Mind on European Stocks

Bernice Napach
Daily Ticker

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Legendary investor Marc Faber is not known for taking a balanced approach in the global market, but that is exactly his investing strategy at the moment.

In a phone interview with the The Daily Ticker, the editor and publisher of The Gloom, Boom and Doom Report says he is "neither ultra bullish nor ultra bearish" and is buying European stocks for the first time ever. He also notes the S&P 500 (GSPC) could gain another 50 to 100 points if the top gainers — including Wal-Mart (WMT), Johnson & Johnson (JNJ), Merck (MRK), Coca-Cola (KO), PepsioCo (PEP), Kimberly-Clark (KMB) and Altria (MO) — continue to rally and the laggards rebound.

Faber believes the European financial crisis is far from being resolved but that doesn't mean European stocks will continue to fall. Those stocks are near 2009 lows, which would be equivalent to the S&P 500 trading at 666, Faber said. The S&P 500 closed at 1400 Tuesday.

"Even if the euro falls apart…..investors may prefer European equities to European properties, which have a tremendous oversupply, or hold cash that may be devalued significantly," Faber says. Indeed, in the past month Vanguard's MSCI Europe ETF (VGK) has gained almost twice as much as the S&P 500 — 6.7 percent compared to 3.45 percent.

Faber tells us he has been buying selected shares in France, Italy, Spain and Portugal as well as Swiss stocks, based on expectations that the Swiss franc will eventually delink from the euro.

The liquidity inflows that are helping European shares rebound are also supporting other financial markets, namely U.S. shares as well as commodities, Faber says.

"On the one hand the global economy is decelerating very rapidly and a large portion of the global economy is already in recession. At the same time you have massive liquidity flowing into the economy, which leads to some assets going up in price."

Key among those assets: commodities, primarily precious metals and industrial commodities.

Faber says the fundamentals for gold are still intact despite a 16% retreat from the highs topping $1,900 per ounce last September. He recommends a 25% position in gold and gold shares based on expectations that central banks around the globe will continue to print money.