Marc Faber: There is a bubble in everything
Famed investor Marc Faber, known as Dr. Doom for his gloomy views, believes the U.S. markets are in the midst of a gigantic bubble and when the day of reckoning comes, investors will likely lose half of their money.
“There is a bubble in everything. Nothing in asset price is very low,” said Faber during an interview on CNBC Wednesday.
His grim prognosis shouldn’t come as a surprise to anyone who has been paying attention to permabear Faber over the years. Still, the fact that his latest warning comes on the heels of a historic rally that has propelled stocks to records lends some urgency to his grim outlook.
“We are somewhere between 1999 to 2000,” he said, referring to the tech bubble and its subsequent collapse.
“One day this bubble will end,” said Faber. When that happens, people will lose 50% of their assets.
Concerns about elevated valuations in the U.S. have been mounting given the S&P 500 SPX, +0.25% and the Dow Jones Industrial Average’s DJIA, +0.20% double-digit gains since November on hopes that President Donald Trump’s presidency will usher in a more business-friendly climate.
“I don’t disagree Trump is good for the markets and economy but some of his statements and actions are not favorable for the U.S.,” said Faber.
Indeed, the euphoria that has gripped the market since the November presidential election has faded as Trump struggles to enact many of his promised policies. Yet, most analysts still believe the bullish market thesis remains intact.
Not so Faber. He thinks consumption is relatively weak for this stage of the economic recovery and predicted that as financial-asset prices rise, wages will deflate and the U.S. economy will further weaken.
All that said, nothing would make him bullish on the U.S. market. Faber believes there will come a day when technology giants Tesla Inc. TSLA, +3.11% Amazon.com Inc. AMZN, +1.40% Netflix Inc. NFLX, +1.58% will fall 10% in a single session. All three have outperformed the broader market, helping the Nasdaq CompositeCOMP, +0.59% to gain nearly 20% over the past six months.
One of the first warnings signals that the market is shifting will be when volatility picks up. But even the lack of volatility has managed to perplex the Switzerland-based investor.
“I do not understand why volatility is so low but when stocks go up as volatility goes up, that will be a sign that something is changing,” he said.
The CBOE Volatility Index VIX, -6.37% which measures investors’ expectation for volatility over the coming 30 days, has been eerily subdued with the monthly average of 10.89 in May the lowest since November 2006, according to Dow Jones Data Group.
Faber, meanwhile, likes U.S. Treasurys, given they guarantee a “certain yield” and particularly given the near-zero interest rates in Japan and much of Europe.
But Treasurys may be the only U.S. asset to escape his disdain, even if arguably they are facing their own bubble. He prefers European assets and gold and 90% of his investment in stocks and bonds are emerging markets.
Faber: Some day Tesla, Amazon and Netflix will fall 10%.