Marc Faber: 'We Are in a Gigantic Financial Asset Bubble'

Thursday, 16 Jan 2014 08:19 AM

By Dan Weil

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The soaring U.S. stock market is way overdone, says Marc Faber, publisher of the Gloom, Boom & Doom Report.

The Standard & Poor's 500 Index jumped 29.6 percent last year and hit a new record high Wednesday.

"We are in a gigantic financial asset bubble," Faber told Bloomberg TV. "It can burst any day. We're very stretched. Sentiment figures are very, very bullish."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

The bullishness stems from expectations of stronger economic growth, Faber says. But he doesn't think those expectations will be met. "The global economy's slowing down," he said.

"There's no growth at the moment in exports in emerging economies, there's no growth in the local economies. So valuations are high."

One stock in particular that Faber cites as overvalued is Facebook. "It's to a large extent a fad," he said. Most users put their pictures on Facebook, and the only people who look at these pictures are themselves, Faber says.

"They all want to be stars. It's a very distractive kind of occupation. I can't imagine that this would have a lot of value."

When it comes to interest rates, the rise in bond yields since 2012 hasn't hurt stocks yet, Faber acknowledges. Indeed, it has pushed money from bonds to stocks, he says.

But if the 10-year Treasury yield reaches 3.5-4.0 percent, the 30-year Treasury hits close to 5 percent and mortgage rates advance to 6 percent, "that will hit the economy very hard," Faber said. The 10-year yield stood at 2.89 percent Wednesday afternoon.

Meanwhile, the Fed's easing program has created a two-class system, Faber says. There are "the well-to-do people that benefit from rising asset prices" and average people, who aren't faring well, he says.

The Fed is largely responsible for higher food, energy and other prices that people have been forced to pay in recent years, Faber says. Higher energy prices are particularly a burden on the poor, as that's where up to 30 percent of their income goes, he says.

Faber thinks the government should take a smaller role in the economy. The federal, state and local governments now account for almost 50 percent of economic activity, he says.

"The larger the government becomes, the less economic growth you have and the more crony capitalism and corruptions you have, because big corporations, and especially the money printers, they're the most powerful people in the world."

Another expert displeased with the Fed is Chris Whalen, managing director of residential real estate firm Carrington Holding Co.

"The policies being followed at the Fed and White House are stifling job creation, even as they encourage moral hazard and the growth of new bubbles in the financial sector," Whalen writes on Breitbart.

The Fed's low-rate policy is "actually encouraging deflation in the U.S. economy by robbing savers of badly needed income," he says.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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