Faber: 'We're in a Gigantic Speculative Bubble'

Sunday, 01 Dec 2013 04:10 PM

By Dan Weil

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Multiple asset markets have entered bubble territory, says Marc Faber, publisher of the Gloom Boom & Doom Report.

"You have to say that we are again in a massive financial bubble in bonds, in equities, in [other] asset prices that have gone up dramatically," he told CNBC.

"Farmland is up 10 times over the last 10 years. Bitcoins are up now, and who knows what will go up next. We are in a gigantic speculative bubble."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

The Standard & Poor's 500 Index has risen 29.1 percent so far this year. While Faber says he hasn’t sold stocks yet, he sees little value in them.

The S&P 500 closed at 1,805.81 Friday. The market hasn’t seen a 10 percent correction in more than two years, and Faber thought a correction was overdue around 1,600. “But that doesn't make stocks good value,” he said.

Faber compares the U.S. stock market to Asian markets earlier this year. They began 2013 on the upswing, and then in May began a swoon that has taken them down 30 percent in currency-adjusted terms, Faber says.

“So we have to be careful in this kind of exponentially rising market.”

Faber notes that Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio, which uses 10-year average earnings, stands at 25. “It's at the high level that would suggest relative low returns going forward,” Faber said.

Meanwhile, short-term interest rates are almost zero, and long-term rates remain low compared to historical averages. The 10-year Treasury note yielded 2.74 percent late Friday.

“So I think if you look at the next five to 10 years, expected returns [on stocks] will be very low,” Faber said.

Still, he says the stock market can climb another 20 percent before it tumbles, as long as the Federal Reserve keeps cranking up the money-printing machine.

For a long-term investor, the time to enter the stock market was late 2008 to early 2009, Faber says. The S&P 500 bottomed at 667 in March 2009.

But, “if you’re a long-term investor, I think future returns will be very disappointing.”

As for the bitcoin digital currency, which has soared by a factor of more than 90 since January to $1,230, the surge reflects an inflow of “excess liquidity,” Faber says.

That same money can go into paintings, farmland, diamonds, etc., he says. “It shows there is a lot of liquidity that just flushes into one speculative sector of the market from another one.”

When it comes to the outlook for stocks this month, some market commentators like to talk about a traditional "Santa Claus rally."

But Mark Hulbert, editor of Hulbert Financial Digest, isn't buying it.“Don’t fall for the sales pitch,” he writes on MarketWatch.

“The stock market’s average performance before Christmas is no better than mediocre. It is only in the last week of December that the market has strong seasonal winds blowing in its sails.”

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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