Biggs, Faber Predict Dollar Rally as S&P 500 Extends 67% Surge

Dec. 29 (Bloomberg) -- Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, are again united as they predict gains for U.S. equities and the dollar.

Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of New York-based hedge-fund firm Traxis Partners LP said in a Bloomberg Television interview yesterday. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing the inverse relationship that existed between March and November.

Biggs and Faber’s advice nine months ago proved profitable as the Standard & Poor’s 500 Index surged 67 percent in the biggest rally since the 1930s. They saw a buying opportunity as investors speculating the financial crisis would cause a depression drove stock valuations to the cheapest level since 1986. Now, Biggs, 77, and Faber, 63, see gains as the economic recovery accelerates and investors shift money from Treasuries.

“History would suggest that after such a severe economic shock like we’ve just had that the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”

GDP Recovery

U.S. gross domestic product will increase 2.6 percent next year after contracting 2.5 percent in 2009, according to the median economist forecast in a Bloomberg survey. GDP will expand 3.5 percent next year, the most since 2004, as spending increases and companies boost investment, said London-based Barclays Plc’s Dean Maki, the most-accurate forecaster.

Equities started rebounding after investors paid a 23-year low of 11.9 times earnings at S&P 500 companies on March 9, according to data compiled by Yale University’s Robert Shiller, who adjusts valuations for inflation and uses a decade of profit to smooth out short-term fluctuations.

Shiller’s earnings multiple has surged to 20.3, matching the level before New York-based Lehman Brothers Holdings Inc. collapsed in September 2008, after the U.S. government lent, spent or guaranteed more than $11 trillion to end the recession.

The rally in stocks was accompanied by a 17 percent retreat in the Dollar Index between March 5 and Nov. 25, the biggest slump since 1986. The measure tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.

Stocks, Dollar Rise

The S&P 500 has added 1.5 percent since Nov. 25 while the Dollar Index advanced 4.7 percent.

Biggs, the chief global strategist for Morgan Stanley until 2003, said in a Bloomberg interview on Feb. 18 that the S&P 500 was poised to rise because economic indicators were starting to improve. Biggs reiterated his optimism in the March issue of Newsweek. His bullish bets during the worst of the credit crisis are giving his six-year-old firm its best returns ever.

Faber advised investors to buy U.S. stocks on March 9 when the S&P 500 was at a 12-year low.

Stocks may rise as Federal Reserve Chairman Ben S. Bernanke is forced to inject more liquidity into the financial system, spurring inflation that prompts investors to shift assets to equities from Treasuries and cash, Hong Kong-based Faber said.

The yield on Treasury 10-year notes has increased 0.64 percentage point this month to 3.84 percent, approaching the seven-month high of 3.95 percent reached in June. The 100 largest taxable U.S. funds returned an annualized 0.06 percent during the past week, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.

“The worst investment will be U.S. Treasuries and cash, which has no return at present,” Faber said. “That money will shift into other assets, and this is the one reason that I am moderately positive about equities.”