Tags: Marc Faber | Central Banks | Asset Bubble | Stocks

Marc Faber: Fed, Global Central Banks Have Rigged 'Colossal Asset Bubble'

Marc Faber: Fed, Global Central Banks Have Rigged 'Colossal Asset Bubble'
Marc Faber (Getty Images)

By    |   Wednesday, 04 November 2015 07:02 AM

The Federal Reserve has inflated an asset bubble and that will plague the stock market "disappointing returns," warns Marc Faber, publisher of The Gloom, Boom & Doom Report.

"Say you're a young person and you're just starting to work. So take me in the 1970s. In the U.S., with 20 hours of work, I could buy the S&P 500. Now you need more than 90 hours of work to buy the S&P 500 if you're young, with a medium income," Faber told CNBC.

"The Fed has basically created with their colleagues in Japan and at the European Central Bank (ECB) and the Bank of England (BOE), they've created a colossal asset bubble. And the returns going forward will be disappointing."

Global central banks have created easy liquidity in markets via zero interest rate policies, and sometimes negative-rate policies, as well as through asset purchases. “That's driven up prices across a range of assets,” CNBC explained.

"The composition of an index is that it's usually capitalization weighted. So one stock that goes up vertically could theoretically drive up an index and 99 percent of the shares don't make new highs," Faber said.

"We had a strong day (Monday) on Wall Street, but on the New York Stock Exchange, out of more than 3,000 shares that are being traded, only less than a hundred made a 12-month new high. The advance is very narrow."

He also fears bubbles in the art and property markets.

"Some markets are still strong, but the bulk is no longer moving up so the advance of asset price inflation has been narrowing significantly," Faber said.

Faber isn’t the only high-profile voice to warn of a bubble.

Republican presidential front-runner Donald Trump recently warned The Hill of a looming economic recession because the stock market has entered into another bubble.

“We’re in a bubble right now anyway,” Trump said, referring to social media companies that he says have initial public offerings worth “billions” but “haven’t even made 10 cents.”

And the victims of the Wall Street "fat cat" antics?

“People who practice the American dream and did what should have been the right way — the people that went through 40 years of their life and saved a hundred dollars every week [in the bank],” Trump told The Hill.

 “They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.”

So what would the aftermath of a burst bubble be, hypothetically, you ask?

A stock-market crash could erase as much as $170.3 billion from major cities’ gross domestic product in the U.S. and Canada and is the biggest threat to their economies, Lloyd’s of London said, Bloomberg reported.

The losses, which represent about 2 percent of combined GDP for the 35 cities studied, surpassed estimates for the impact of natural disasters such as floods and earthquakes as well as terrorist attacks, the London-based insurance market said in a report.

A crash that large has happened five times globally in the past 50 years, including when the 1999 dot-com bubble burst and the financial crisis struck in 2008. Losses forecast in the analysis include supply-chain interruptions and declines in corporations’ revenue, according to the report, which was based on research by Cambridge University.

“Market crash puts the most GDP at risk globally — representing nearly a quarter of all cities’ potential losses,” Lloyd’s said. “Man-made threats are becoming increasingly significant.”

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The Federal Reserve has inflated an asset bubble and that will plague the stock market "disappointing returns," warns Marc Faber, publisher of The Gloom, Boom & Doom Report.
Marc Faber, Central Banks, Asset Bubble, Stocks
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2015-02-04
Wednesday, 04 November 2015 07:02 AM
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