Marc Faber Fears Stock Market Crash (GLD, SLV, TZA, SDS, AGQ)
Dominique de Kevelioc de Bailleul: Marc Faber, editor of the Gloom Boom Doom Report, and the man who said in early April he expects “massive wealth destruction” ahead for investors, also expects a 1987-style stock market crash if U.S. stocks continue to rally without further Fed stimulus.
“I think the market will have difficulties to move up strongly unless we have a massive QE3,” Faber told Bloomberg’s Betty Lui on Friday. “If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Get my next ALERT 100% FREE
Faber’s comments about the market’s dependency upon further Fed ‘quantitative easing’ come off the heels of TrimTabs CEO Charles Biderman statement of Apr. 30, when Bidrman said in a weekly update, “It’s the Federal Reserve that controls the market” and “we play with their money that they print or stop printing.”
The wealth effect of record U.S. housing prices, robust credit-driven consumer spending, an employed workforce, and an economy fueled by ever-increasing debt has disappeared for the most part, leaving investors with little money to buy stocks. And if there is money left over, the retail investor is buying bonds or parking extra cash in money market accounts in fear of the next show to drop in Europe, with fallout across the Atlantic anticipated to spill over to the U.S.
Collective market wisdom says that stocks have risen due to a natural rebound from oversold conditions in March 2009, relatively high dividend yields compared with Treasuries, and massive liquidity provided by the Fed. But Faber feels that earnings expectations are too high and could disappoint, and that many companies paying out dividends from earnings could level off, be cut, or eliminated by some companies all together.
“If the market makes a new high, it will be a new high with very few stocks pushing up and the majority of stocks having already rolled over,” Faber continued. “The earnings outlook is not particularly good because most economies in the world are slowing down.”
In mid-November of last year, Faber began speaking about the connection between easy Fed monetary policy and rising stock prices, by he also became concerned that, despite record global central bank stimulus the world economy was rebounding at a rather anemic rate compared with previous recovery cycles.
Faber told the Taiwan’s Taipei Times, “A third wave of quantitative easing by the U.S. Federal Reserve is just a matter of time,” as economic data showed, then, sluggishness in real employment rates, capital spending and global trade.
By December, Faber warned of at least a 10 percent correction for February—which never materialized. In a subsequent interview, however, he admitted that calling market bottoms is far much easier than calling market tops.
Today, parallels can be made between 2012 and 1987, with both years starting out “strong” followed by a “correction,” he said in response to a viewer e-mail to Bloomberg. “If we have a rally into August it could resemble 1987 with a crash in the fall.”
But a formal announcement by the Fed of further stimulus may change his outlook, Faber said.
Related: Direxion Daily Small Cap Bear 3X Shares ETF (NYSEARCA:TZA), ProShares UltraShort S&P500 ETF (NYSEARCA:SDS), SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver ETF (NYSEARCA:AGQ).
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