Faber Sees 10% Retreat in S&P 500 Index, Saying U.S. Stocks Are Overbought

Bloomberg – 25/01/2011

Marc Faber, who told investors to buy U.S. stocks in March 2009 before the Standard & Poor’s 500 Index began to rally, said the gauge may drop 10 percent because too many investors are bullish.

“A correction is coming,” Faber said in an interview from Zurich with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” “Equities in the U.S. will go down less than emerging markets.” He predicts a drop of as much as 30 percent for equities in developing countries. The MSCI Emerging Markets Index has advanced 134 percent from its low in March 2009, while the S&P 500 jumped 91 percent. Equities gained as central banks kept interest rates near record lows and governments spent trillions of dollars to spur growth. On Nov. 3, the Federal Reserve said it would buy an additional $600 billion of Treasuries through June. Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 then climbed 10 percent to its record of 1,565.15 seven months later, and ended the year up 3.5 percent.


Faber, who publishes the Gloom, Boom and Doom report, reiterated his views from a Dec. 30 interview with Bloomberg News when he said that U.S. Treasury bonds are a “suicidal” investment and are likely to decline in the long-term. After bottoming in December 2008, the 10-year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October. Treasuries rose today, pushing yields on 30-year bonds down the most this year, on speculation President Barack Obama will propose a five-year freeze of non-security discretionary spending to help cap record deficits.

“Treasuries are the best place for the next 10 days,” Faber said. “Not for the longer-term”.


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