Tags: Faber | Stocks | Significant | Correction

Faber: 'Significant Correction' to Avert '87-Style Stock Crash

Monday, 21 May 2012 12:25 PM

U.S. stocks are undergoing a significant correction right now, which is probably a good thing, says economist Marc Faber, publisher of the Gloom, Boom and Doom report.

While stock indices like the S&P 500 or the Dow Jones Industrial Average may be down recently, they'd be certain to plunge later this year if the recent correction weren't taking place, probably similar to the crash of October of 1987.

"If the market were not correcting now and continued to rise in July and August, then the likelihood of a crash in the fall was increasing — a crash in the order of 1987," Faber tells Bloomberg TV.

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"Now we are in the midst of a very significant correction, not so much in terms of indices, but many shares have already declined 20-40 percent from their highs. Some highs were actually reached a year ago in May of 2011 and some highs were reached late last year. But the technical picture of the markets is quite bad."

While the market will present some buying opportunities going forward this year, mainly due to election-year rhetoric and due to seasonal factors, don't expect stocks to soar, Faber says.

"I don't think the crash will happen right away but equally, I don't think that the markets are in a position to make new highs," Faber says.

Europe continues to dampen stock markets worldwide, and a Greek exit from the eurozone would probably spark a relief rally, Faber adds.

One expert sees U.S. stocks jumping up 20 percent if Europe could firewall the crisis and end agonizing uncertainty.

"All you need is the European Central Bank to come out and say or for Europe to say 'we will put a bottom to this, we will come with a program that will guarantee the debt of peripheral countries, and we are ready and willing to stand behind and make sure no one defaults," Kumar Palghat, founder of Kapstream, a global fixed income manager, tells CNBC's "Cash Flow."

"They need to create confidence in the system and once they do that bond yields will rise and equity market could go higher."

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Monday, 21 May 2012 12:25 PM
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