Tags: Faber | stocks | bubble | value

Marc Faber: Stocks Will Drop '30 to 40 Percent at Minimum' as Bubble Bursts

By    |   Friday, 01 May 2015 06:00 AM

With the S&P 500 index hovering less than 2 percent below its record high, many market participants are calling for a correction of about 10 percent. Marc Faber, editor of The Gloom, Boom & Doom Report, is calling for a little more than that.

"For the last two years, I've been thinking that U.S. stocks are due for a correction," he told CNBC. "But I always say a bubble is a bubble, and if there's no correction, the market will go up. And one day it will go down, big-time."

So what's big-time?

"The market is in a position where it's not just going to be a 10 percent correction," Faber said. "Maybe it first goes up a bit further, but when it comes, it will be 30 percent or 40 percent minimum."

And you can thank central banks around the world, whose massive easing campaigns have left "all assets grossly overvalued," Faber noted.

In addition, market momentum has slowed, he suggested. "Look at the market since November of last year to now. The market is up 2 percent. It hasn't done much, and a lot of stocks are breaking down. I don't think that the market is in a healthy condition."

In the United States, the Federal Reserve has kept its federal funds rate at a record low of zero to 0.25 percent since December 2008. And economists don't think the Fed will start raising rates until at least September.

Meanwhile, Byron Wien, vice chairman of Blackstone Advisory Partners, says slowing population growth will put a damper on GDP growth and profits during the next 50 years.

A new study by the McKinsey Global Institute estimates that population growth will drop to 0.3 percent a year over the next half-century, after growing six-fold over the last 50 years.

"If productivity continues to contribute 1.8 percent, overall [economic] growth will decline to 2.1 percent, a rate 40 percent less than during the past half-century," Wien wrote in an article for Barron's.

"The implications of this slowdown on global changes in the standard of living and investment opportunities could be enormous."

In the United States, productivity growth shrank an annualized 1.8 percent in the fourth quarter, and the economy grew 2.4 percent last year.

As for investors, "this means that profit margins are likely to be under pressure if the boost from productivity improvements diminishes," Wien explained.

"It also means that revenue increases may be modest as the population grows more slowly. Because these factors will have a negative impact on earnings growth, companies will focus more on financial engineering . . . to increase earnings."

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With the S&P 500 index hovering less than 2 percent below its record high, many market participants are calling for a correction of about 10 percent. Marc Faber, editor of The Gloom, Boom & Doom Report, is calling for a little more than that.
Faber, stocks, bubble, value
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2015-00-01
Friday, 01 May 2015 06:00 AM
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