Faber: Stocks Are Headed for Correction; The Sooner, the Better

Sunday, 24 Feb 2013 12:39 PM

By Dan Weil

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The stock market is headed for a correction; the only question is timing, says Marc Faber, publisher of the Gloom, Boom & Doom Report.

If it happens soon, the downturn can be mild, he tells CNBC. But if it doesn’t come until later in the year after the market has soared to new highs, stocks may suffer a 1987-style crash, Faber says.

Major stock indices hit a five-year high Tuesday, with the Standard & Poor’s 500 Index reaching 1,530.94.

“I think we have made the top, and it could be a longer-term top,” Faber says. “I don't think the market is as overbought as it was in 1987, so I don't expect a crash.”

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

If there’s a correction now, stocks have a good chance to move higher, he says. “The question after this correction is whether the market can make a new high. Maybe 1,530 on the S&P 500 will prove to be a longer-term high.”

And what makes Faber thinks the market is ripe for a correction? “There is very overextended bullish sentiment,” he says. “When everybody thinks alike, you have to be careful.”

Pimco CEO Mohamed El-Erian thinks a correction is in order, too.

The stock market’s latest upward surge has been fueled by the Federal Reserve’s massive easing rather than fundamentals, he tells Yahoo.

“We think that [stock] prices are artificially high, that maintaining them here is going to be hard as central banks become less effective, and that it’s time to book some profits and to wait for some better entry points,” El-Erian says.

Like Faber, he isn’t looking for a plunge. But “prices that have gotten way ahead of what policy can deliver," El-Erian says.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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