Marc Faber, is famously called Dr. Doom due to his never ending prophecies that something or the other is going to witness a correction. So, another prophecy by him that the U.S. Stock markets will collapse by 20% was nothing new when he said it on CNBC, exactly a year ago. The interesting observation though that one makes when rewinding to the views that he held then, is the logic. Mr. Faber is not someone who plainly utters verbiage when asked about the reasoning behind his predictions, he offers a logical explanation behind them. The problem is that even though his reasoning can be deemed right at times, the outcomes mostly don’t match up to it.
“I argued, since last October that we would either have a 20% correction or we could be in a situation like 87, when the market rallied very strongly into August 25th and then fell by 40%. Though, I think that some of the tailwinds we have namely massive monetization and falling interest rates are no longer in place. We still have massive monetization, but it seems to me that the Fed has lost control of the bond market and this is very important,” Faber said.
Faber justified his views of the market last year being similar to how they were in 1987, by saying that in 1987 the market saw an impressive rally while the earnings didn’t increase significantly, and the same was happening in 2013. He also included that in 1987 when the U.S. markets were hitting new highs, a host of companies were below their 52-week highs and similar to that, just two days before his views were aired, 117 companies in the S&P 500 were touching new 52-week low while S&P 500 was making new highs.
“I think, the only way this market can go up is that if the 10 or 15 stocks that are very strong, continue to drive the market higher, with the majority of stocks that have actually peaked out when the market reached on May 22nd, 1687, we are not far above the May 22nd high. So, the majority of stocks is actually lower than it was two, three months ago,” Faber added.