Are asset prices in a bubble? If so, how much longer until that bubble bursts? According to Marc Faber, a legendary investor and editor of the Gloom, Boom & Doom Report, the bubble may already be in the process of blowing up.
Speaking in an interview with CNBC on Tuesday, Faber, a well-known bear on the United States economy and stock market, said that asset prices are in “a colossal bubble” and that it will inevitably come to an end. The end of the asset prices bubble may already be occurring, even though stocks have continued to move upwards.
For Faber, the very fact that stock prices have increased is the reason why he is so bearish, especially considering that there hasn’t been a correction in the S&P 500 of more than 11 percent. Although there may not be correction anytime soon, the U.S. could suffer from a bear market.
“Obviously I’ve been wrong in the sense that I expected a correction to occur over the last two years, and it hasn’t happened since October 2011, when the S&P was at 1,074,” Faber averred.
“We’ve gone up in a straight line, without a larger correction than 11 percent, and I think we’re not going to have a correction, but we’re going to have a bear market.”
What kind of drop could transpire in the S&P 500? Faber pegs it at 30 percent.
Economists were pleased to see last week that the U.S. labor market added about 288,000 jobs in the month of June. Despite the enthusiasm for this report, Faber doesn’t think the U.S. or global economies are getting any better.
“I don’t believe that the global economy is strengthening; I rather think the global economy is weakening,” he said.”There are other issues that may put the weight on the markets that will push prices lower. A, I think that we have in the White House, a very poor president, and that may lead to some political issues in the U.S. domestically. B, we have numerous political issues to consider, And C, we could have, potentially, a much higher oil price.”
Faber isn’t the only one talking about possible bubbles. The New York Times published an article Tuesday entitled “From Stocks to Farmland, All’s Booming, or Bubbling: Prices for Nearly All Assets Around World Are High, Bringing Economic Risks,” in which it looked at the soaring value of assets: Spanish sovereign debt, junk bonds, Manhattan office buildings, farmland and much more.
The New York newspaper wrote:
“The Everything Boom brings obvious economic risks. In the most pleasant outcome, global economic growth would pick up, causing today’s expensive assets to begin looking more reasonably priced. But other outcomes are also possible, including busts in one or more markets that could create a new wave of economic ripples in a world economy still not fully recovered from the last crisis.”
In the future, investors will only have two options: seek out returns lower than the historical norm or seek out ambiguous investments in the hopes of garnering an extra percent.