Marc Faber, the editor of The Gloom, Boom & Doom Report who has earned the nickname “Dr. Doom” for his pessimistic forecasts, said the stock market’s record highs shouldn’t be mistaken as a sign of a healthy outlook for investors.
The highs need to be considered in the context of other asset values and the work of central banks to flood the global financial system with cash.
While the S&P 500 has risen 10 percent this year, “the euro is up 12 percent against the U.S. dollar, so anyone who bought U.S. stocks with euros hasn’t made any money yet, unless he bought the high-tech sector,” Faber told CNBC in an interview.
He’s also seeing a change in market leadership as tech stocks start to weaken and “old economy” equities like those that make up the Dow Jones Industrial Average make a comeback.
The Dow reached an intraday high of 21,918.56 on Monday as it zeroed in on the psychologically important level of 22,000. The strength was driven by gains in companies like Boeing, Chevron, Johnson & Johnson, Home Depot and Verizon.
Meanwhile, the Nasdaq Composite has fallen from Thursday’s record high as tech-related companies like Facebook, Amazon, Netflix and Alphabet come under pressure.
“There is a change in leadership. We saw something similar like in 1999-2000, when the tech stocks were leaders,” Faber said, referring to the height of the dot-com bubble. “The old economy stocks are now coming back -- and the commodity-related stocks.”
He said markets remain dependent on easy money policies of central banks that are buying stocks and bonds to in an attempt to spur higher inflation. The Federal Reserve stopped buying government and mortgage debt several years ago, but the European Central Bank and Bank of Japan have kept on buying.
“Risk has been suppressed by central banks with their asset purchases,” Faber said. “It’s a very artificial environment.”
He said he sees distortions in the pricing of risk, with Italy’s government bonds paying lower interest rates than those for the U.S., France and Spain.
Faber said he has a “simple” asset allocation of 25 percent real estate, mostly in Asia. Another 25 percent is in equities, including Asian and European stocks. European financial stocks are looking more attractive, he said. He also has money in precious metals and gold-related shares.
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