Key indexes may drop more than 30%, analyst Marc Faber warns
NEW YORK – STOCKS in the United States are at the beginning of a bear market in which benchmark indexes may fall more than 30 per cent, investor Marc Faber said.
Dr Faber, managing director of Marc Faber Ltd and publisher of the Gloom, Boom & Doom Report, said losses in mortgage-backed bonds are not ‘contained or easily solvable’ with interest rate cuts by the Federal Reserve.
He predicted in an interview last Friday that the Dow Jones Industrial Average will drop below 12,000.
Dr Faber, nicknamed Dr Doom for his less-than-rosy forecasts, said investors conditioned to buy stocks on dips helped push the indexes to records after sell-offs in February and June.
Emerging markets are particularly vulnerable because investors have bought into them heavily, he said.
The Morgan Stanley Capital International Emerging Markets Index has dropped 10 per cent since climbing to a record on July 23, cutting its gain for the year to 15 per cent.
Other investors said stocks will rebound because of profit growth.
Second-quarter earnings for members of the Standard & Poor’s (S&P) 500 Index have climbed an average 10.9 per cent among 452 companies that reported results, according to Bloomberg data.
‘We are still very positive on the equities market,’ said Mr Brian Stine, who helps oversee US$29 billion (S$43.7 billion) as an investment strategist at Allegiant Asset Management in Cleveland.
‘The fundamentals haven’t changed. Global growth should translate into earnings and higher stock prices.’
The S&P 500 added 1.4 per cent to 1,453.64 last week.
The Fed last week added US$62 billion in temporary funds to the banking system, amid an increase in demand for cash from banks roiled by US sub-prime loan losses.
Traders are speculating that the Fed will cut interest rates at an emergency meeting as soon as next week, according to Merrill Lynch.
‘I’m very critical of central banks,’ Dr Faber said in an interview from Vancouver. ‘They may bail out the system but there will be a cost and the cost will be inflation.’
He told investors to bail out of US stocks a week before the 1987 Black Monday crash, according to his website. He predicted correctly in May 2005 that stocks would make little headway that year, with the S&P 500 eventually gaining just 3 per cent. He also told investors to buy gold in 2001, before it more than doubled.
On March 29, Dr Faber said the emergence of home loan concerns meant the stock market was unlikely to benefit from the conditions that had supported its rally since June last year.
The S&P 500 climbed 10 per cent between then and July 19, when it reached a record, and has fallen 7.1 per cent since then.
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