Faber Says Long-Term U.S. Treasuries Are `Suicidal' Investment

Marc Faber, who advised investors to buy U.S. stocks in March 2009 as the Standard & Poor’s 500 Index began a rally of as much as 86 percent, said U.S. Treasuries are a “suicidal” investment.

Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom report. After bottoming in December 2008, the 10-year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October.

“This is a suicidal investment,” Faber said in a telephone interview from St. Moritz, Switzerland. “Over time, interest rates on U.S. Treasuries will go up. Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. The worst investment is in U.S. long-term bonds.”

On Nov. 3, the Fed said it would buy an additional $600 billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation. U.S. bond funds had withdrawals of $8.62 billion in the week ended Dec. 15, the most in more than two years, according to Washington-based Investment Company Institute.

Rising Yields

Treasury 10-year note yields will rise to 5 percent from yesterday’s level of 3.349 percent, Faber said, without specifying a time frame. As bonds fall over the next decade, he said investors should buy precious metals, real estate or equities. U.S. debt has returned 5.7 percent in 2010, more than erasing last year’s 3.7 percent loss, according to a Bank of America Merrill Lynch index.

Treasuries fell today as reports showed initial jobless claims dropped more than forecast, U.S. businesses expanded at the fastest pace in two decades and pending home resales beat expectations. The yield on the benchmark 10-year note advanced 0.02 percentage point to 3.37 percent at 4:28 p.m. in New York, according to BGCantor Market Data.

Bonds may rally in the next two or three weeks, Faber said.

Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 then climbed 10 percent to its record of 1,565.15 seven months later, and ended the year up 3.5 percent.

Faber said equities may continue to advance as the dollar weakens as a result of loose monetary policy.

“If you print money, the currency goes down and the S&P 500 goes up,” he said. “By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror.”

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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Investment Analyst Marc Faber

Jonathan Fickies/Bloomberg

Marc Faber, investment analyst.

Marc Faber, investment analyst. Photographer: Jonathan Fickies/Bloomberg

Dec. 9 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the outlook for the U.S. economy. Faber, speaking from Chiang Mai, Thailand, with Betty Liu on Bloomberg Television's "In the Loop," also talks about Treasury yields and China's economy. (Source: Bloomberg)

Dec. 29 (Bloomberg) -- Jeffrey Palma, global equity strategist at UBS AG, discusses investment strategy and the outlook for equities. Palma talks with Carol Massar on Bloomberg Television's "In the Loop ith Betty Liu." (Source: Bloomberg)

Dec. 29 (Bloomberg) -- Donald Yacktman, president and chief investment officer of Yacktman Asset Management, talks about investment opportunities in large-capitalization stocks. Yacktman speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Dec. 30 (Bloomberg) -- Eric Van Nostrand, U.S. interest-rate strategist at Credit Suisse Securities, Jonathan Lemco, senior analyst at Vanguard Group Inc., and John Brynjolfsson, chief investment officer at Armored Wolf LLC, talk about the outlook for U.S. Treasuries. They speak with Carol Massar on Bloomberg Television's "Street Smart." (This is an excerpt of the full interview. Source: Bloomberg)