Marc Faber: Prepare for a Massive Market Meltdown (CNBC)
The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.
I don't think markets are going down because of Greece, I don't think markets are going down because of the 'fiscal cliff' - because there won't be a 'fiscal cliff,' " Faber told CNBC's "Squawk Box." "The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view."
Regarding budget deficits he said,
"There will be pain and there will be very substantial pain. The question is do we take less pain now through austerity or risk a complete collapse of society in five to 10 years' time?" he said, adding that there was a lack of political will to tackle the U.S. budget. Full story at…http://www.cnbc.com/id/49802535
As noted, he authors the “Gloom, Boom, and Doom” report so he is a well-known Bear.
Let me suggest one point regarding the Fiscal Cliff: In the stock market, if
everyone thinks the market is going up, it usually goes down. The herd is always wrong. Just look at today’s action in
Facebook. All of the pundits said that Facebook
was going to crash because employee shares unlocked; instead it was up more
than 10%. My point is simple – everyone
thinks a resolution to the Fiscal Cliff will solve the stock market’s
problems. While that seems logical, I
wouldn’t bet on it.
CORRECTION? HOW FAR COULD THE MARKET DROP?
John Hussman, PhD , has maintained that while the conditions at the recent S&P 500 top of 1466 were the worst in history (measured by data points and his number crunching – see yesterday’s blog), he has noted in several Market Commentaries that this does not mean that this correction will be the worst in history.
While the NTSM
system does not predict an S&P 500 target (and neither did Mr. Hussman), I
can make a guess, something I am usually too busy to do when I first get a sell
signal.
FactSet reported a forward P/E of 12.6 in October. Since the P/E at major-lows is usually around 10, I think that the correction now underway is not likely to be much greater than 20%, top to bottom (leaning toward a worst-case). That would put the bottom in a range of 1125-1175.
FactSet reported a forward P/E of 12.6 in October. Since the P/E at major-lows is usually around 10, I think that the correction now underway is not likely to be much greater than 20%, top to bottom (leaning toward a worst-case). That would put the bottom in a range of 1125-1175.
If a recession
ensues (as Hussman and the ECRI predict), all bets are off. Could
it be less than 20%? Sure. No one has a crystal ball. See the October FactSet report at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.12.12
MARKET
RECAP
Monday the S&P 500
down 1.4% to 1355 (rounded). VIX rose 7.6%
to 17.91.
NTSM
The
NTSM analysis remained SELL WednesdayThe VIX indicator is not a sell yet, but it’s close. Market internals deteriorated again today.
.
MY INVESTED POSITION
Based on the SELL signal,
7 November 2012, I moved out of the stock market at 1377 on the S&P
500. Because of the extreme negativity I
have noted from Hussman and others, I am currently invested in a range of near
15% invested in stocks. I also took
short positions on the morning of the 8th that make me currently net
short the S&P 500. (I am using
Guggenheim (formerly RYDEX) funds and 2x Short ETF, SDS. Those are dangerously volatile so I don’t
recommend them unless you have a BIG tolerance for risk. Also, if they are held too long they may not
perform well.
REPEATING STRATEGY
As
I have noted before, others may choose to keep more invested in stocks without
too much damage to their portfolio if the invested % is low. For example, if one were to keep 30% invested
in stocks and the market crashed by 50%, the loss to the portfolio would only
be 15%. If that is your plan, keep the
low-beta stocks (those with lower P/E ratios) such as utilities, consumer
staples, or value oriented mutual funds.
Sell technology. Keeping 30%
invested in stocks is actually a pretty good strategy since it hedges the bet
if I am wrong and the market continues up after a sell signal.
To
be clear I am not predicting a crash; but there seems to be a lot of risk now.
