Marc Faber: Stocks Have “Considerabe Downside Risk”

Via Bloomberg Surveillance:

Marc Faber, publisher of the Gloom, Boom & Doom report, appeared on “Bloomberg Surveillance” with Tom Keene and Alix Steel today, saying that he sees “considerable downside risk” for U.S. stocks and Faber went on to say, “We are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide.”

Faber on whether he’s participated in the equity rise in the U.S.:

“I think that I was relatively positive about U.S. stocks since March 2009. I haven’t been shorting any stocks since 2009. The U.S. march is up and consumer confidence is down. Emerging markets are performing badly relative to the U.S.. the dollar is strong, indicating a tightening of international liquidity. I do not think the U.S. market will go up a lot from here. I rather think there is now considerable downside risk.”

On whether Europe can repair its house:

“They can repair it and actually Europe now has a current account surplus, which is positive. But obviously the economy is contracting. We are in recession in Europe. This will have an impact on the corporate profits of U.S. corporations as well because 40% of S&P earnings come from overseas, but the bulk actually comes from Europe and not emerging countries. I think that corporate profits in the U.S. will continue to contract as they have actually — according to S&P — contracted in the first quarter of 2012.”

On why gold hasn’t held up as a safe haven:

“When you print money, the money does not flow evenly into the economic system. It stays essentially in the financial service industry and among people that have access to these funds, mostly well-to-do people. It does not go to the worker. I just mentioned that it doesn’t flow evenly into the system. Now from time to time it will lift the NASDAQ like between 1997 and March 2000. Then it lifted home prices in the U.S. until 2007. Then it lifted the commodity prices in 2008 until July 2008 when the global economy was already in recession. More recently it has lifted selected emerging economies, stock markets in Indonesia, Philippines, Thailand, up four times from 2009 lows and now the U.S. So we are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide. Even in gold, it will be difficult to hide.”

On whether the raiding of bank accounts in Cyprus set a precedent for Europe:

“MF Global, the depositors were also raided. It is nothing unusual. Philosophically I believe that we shouldn’t have deposit insurances, blanketed insurances by governments because it would force savers to be very careful with which bank they would deposit the money. The good banks would pay very low interest and take low risks and the banks that take high risks would have high interest. By the way, in Cyrus, banks were paying very high interest like in Lebanon at the present time I can get 6% on my deposits. So the depositors should have known that something is dangerous, but I would say that the principal now is very important to understand. Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money — like I am concerned — I am sure the governments will one day take away 20-30% of my wealth.”

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. I got a problem with this:

    “Philosophically I believe that we shouldn’t have deposit insurances, blanketed insurances by governments because it would force savers to be very careful with which bank they would deposit the money. The good banks would pay very low interest and take low risks and the banks that take high risks would have high interest.”

    How does an average saver evaluate the safety or soundness of a bank? You don’t. You don’t have access to the information. Not only is the details of the loan book unavailable to the public, but lots of obligations can be hidden off the balance sheet. We all know about AAA securities and companies that turned out to be anything but in 2008-9. Even government bank inspectors who have complete access are sometimes fooled. And knowing what is there is not enough, because assets can get impaired quickly in a crash.

  2. I have the same problem.

    For the average person company accounts may as well be written in Martian and if we are honest with banks they have only become increasingly opaque over the years.More a document for concealment than disclosure. Reminds me of Greenspan..”if you think you understood me I wasn’t making myself very clear”…for bank company accts “if you really understand the financial position we need to go back and redo them”

  3. “USD is strong” good observation if it was true; I don’t see a big move especially vs. Asia. But there is that eery feeling that all markets are declining except SPY.

  4. Faber correctly points out that it is rare for safety of assets and high return to go hand in hand. Any asset, even a bank account, where you are earning a high return may have its safety compromised due to the risks being taken to get that high return. As a saver/investor, if you want safety, for at least some of your assets you must settle for a lower return.

  5. USD has recently increased versus the three other major currencies: Euro, UK pound, and Yen. How long this short-term trend lasts – who knows?

  6. I think this raises an issue with austrian type free-market theories in general, that believe that competition and transparency can solve problems better than regulation. The caveat is that this would require each individual to acquire ridiculous amounts of very precise information, and then would be burdened to make choices he couldn’t care less to make. I, for example, would rather have the legislator regulate banks and guarantee my deposits and then go to pretty much any bank, than having to spend hours reading through reports and studying the accounting of the banks…

  7. “I think that I was relatively positive about U.S. stocks since March 2009.”

    Really?! How does this guy get any airtime anyway? It is obvious his predictions are not the reason….or his truthfulness. So what gives?

  8. Cullen, the Japanese finance minister was only able to generate a +11% gain 7 weeks (boo hiss) versus his suggestion of 16%. Please let us know if you hear about his end of quarter “suggestion” for the Nikkei for Q2. Thanks for playing.

  9. And after March 2009 when the accounting board changed FAS 187 the banks can now “mark to fantasy” rather than “mark to market”. So even if you had the financial acumen (which of course 5-10% of americans might have) you now have to read documents full of lies aka balance sheets of America’s TBTF banks.

  10. The worry for strengthening USD is usually two-fold:
    (a) short USD funding
    (b) hot (USD) money outflow, front-running the collapse
    EUR is just within it’s trading range and EURUSD forwards are signaling easy conditions. The Yen is a special case; Jap companies may be offside on some FX swaps, but they are generally low leverage; there wasn’t a hot inflow, so not much to go out. I’d be watching Asia (ex JPY) and EM. There have been several articles recently on hot money outflow from China, although it’s hard to say whether these guys are front running a collapse or just taking their corrupt winnings out of reach.

  11. Cullen – how can you let this go without comment?
    “When you print money, the money does not flow evenly into the economic system. It stays essentially in the financial service industry and among people that have access to these funds, mostly well-to-do people. It does not go to the worker.”

    To the irregular reading it seems like an endorsement of something you’ve written a million articles attacking the concept.

  12. Yeah ditto.

    It’s sort of a ‘nice to have’ but not realistic.

    A few posts ago, I lamented about the fact that I can’t go to an insurance company and purchase bank depository insurance. Policies like that are not available from insurance companies.

    Partly due to the FDIC.

    And to address being able to assess counter-party risk, you might/could say that if we had insurance companies that offered this insurance, those experts would know the solvency risk of all the banks, indeed, have a rating system of banks for review.

    Unfortunately, the opacity of MBSs & CDOs, ‘off’ sheet accounting, and the FASB release of mark-market, would fool even the experts.

    I doubt the banks themselves know their own risk exposure.

    Despite my desire for getting my own deposit insurance, I think a lot would have to change in the industry first. And since it is not a ‘free’ market (oligopoly), regulation towards transparency is about the only (bad) answer.

    I won’t go so far as Belsha below though. I do not view this as an utter condemnation of (Austrian) free-market thinking (and transparency). I still think there is value in a free market (unencumbered if you will). I think it is really down to key aspects of the market that involve the public’s trust at a high level of incidence.

    Still wish I could buy my own deposit insurance, though.

    I don’t like having to place my trust in a governmental facility.

    They don’t seem to get contract rights.

  13. Yep, last November he predicted another 20% downside to US Equities. Another media fed Carnival Barker.

  14. Belsha, there is always The Bank of Mattress…It is self insured with all the needed transparency…

  15. Matt & Balex, agree with your thoughts..I like the man personally, however, I would not want he as my financial adviser…

    He is worse than a bear – he is a Polar Bear…