Marc Faber, who nailed both the economic downturn and the recovery, is telling investors to be cautious about buying stocks at current levels. As he mentioned in his 2010 outlook (see here) Faber says stocks are unlikely to reach new highs in 2010 and are more likely to correct further. He predicts the equity markets will end lower in 2010, but are unlikely to decline substantially due to government intervention:
“I would look at the market to close probably a bit lower than it started the year in 2010.” Equally, I don’t think we have a huge downside risk. If the Dow and the S&P dropped, say 15-20 percent, in other words the S&P towards 900, I think there would be more stimulus and more quantitative easing.”
Faber predicts that we are nowhere near the end of economic weakness and that the government will continue to pour money into the economy due to continuing deleveraging in the private sector. He believes we are likely to see more stimulus packages in the US and an ever expanding Federal Reserve balance sheet.
In terms of the global economy, Faber also expects slowing growth. He says China is likely a bubble and that there is a 99% chance the economy will slow with a 30% chance of a full blown crash. He says the Chinese slow-down will have extremely negative impacts on the global recovery.
Faber says the Chinese and US governments have only prolonged our problems with their stimulus packages. He says we are now staring at the next great crisis as opposed to letting the system cleanse itself as it should have. Due to this, government debts have exploded and Faber says higher rates are guaranteed over the next decade.