By Rob Williams – Re-Blogged From Newsmax
Marc Faber, editor of The Gloom, Boom & Doom Report who has earned the nickname “Dr. Doom” for his pessimistic forecasts, said he wouldn’t buy stocks even if the S&P 500 dropped 20 percent.
“We have a bubble in everything,” Faber said on CNBC. “We have global debt as a percent of global GDP that is 30 to 40 percent higher than it was in 2007. All of us and I also own lots of assets. We’re going to lose 50 percent. Either the government will take it through taxation or expropriation, or there’ll be a deflation in asset prices that is surprising most people on the downside.”
Major stock indexes have risen to record highs in the months since Republican Donald Trump won the November presidential election on a pro-business platform. Investors piled into stocks on the possibility of tax cuts, less regulation and billion-dollar spending on roads, bridges and airports.
Faber singled out technology stocks as being in a bubble, reminiscent of the dot-com boom and bust 17 years ago.
“The bubble is in the most popular stocks. These may be great companies – Amazon, Netflix, Nvidia and so forth – but they are highly priced,” Faber said. “Don’t forget that from October 1999 to March 2000, the Nasdaq 100 doubled, and then it went down 70 percent.”
He also said weakening car sales is a significant indicator that the U.S. economy isn’t that strong. He also said the Federal Reserve’s easy money policies have only helped to grow the wealth of people who own assets, but that largely excludes the millennial generation.
“The Fed has been very successful in boosting asset prices, but the wages haven’t followed,” Faber said. “People don’t have enough money to spend and invest.”
The Fed in March raised interest rates for the third time in the past 10 years with the prospect that President Donald Trump would push for a fiscal plan to stimulate stronger growth. Prior to its December 2015 hike, the central bank had held rates at record lows near zero percent since 2008, when the global economy suffered its worst decline since the Great Depression.
Faber recommended U.S. Treasurys, corporate debt in Europe and emerging markets as better investments.
“I would rather invest in Europe, where valuations are lower and where the economy seemingly is improving,” he said.
Faber said foreign markets have “outperformed the U.S.” this year, which will continue.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., identified five indicators that show fewer stocks are participating in the rally, according to a May 31 research report obtained by Newsmax Finance.
That narrow breadth means disappointing results from an e-commerce company like Amazon.com, which has risen 40 percent in the past 12 months, could take down a market index like the S&P 500 or the Nasdaq Composite.
David Rosenberg’s 5 Signs of Deteriorating Market Breadth
- NYSE Advancers-Decliners Line: The NYSE cumulative advancers-decliners line, which compares the number of rising stocks with falling stocks, has shown little improvement since mid-December, Rosenberg said.
- NYSE Stocks Closing Above 200-Day Moving Average: The 200-day moving average indicates longer-term trends for a stock’s price. A stock trading below that average points to a downward trend. “The share of NYSE stocks closing above their 200-day moving average has fallen from a nearby peak of 72 percent on February 27 to 58 percent currently,” Rosenberg said.
- Equal-Weighted S&P 500 Index: This benchmark gives each stock the same weighting in calculating the index, to lessen the effect of a handful of companies on the broader market’s value. Rosenberg said the equal-weighted index isn’t performing as well as the S&P 500 index that is weighted by the market value of individual stocks.
- Small-Caps Are Lagging: Companies with a valuation of less than $2 billion are more sensitive to changes in the economy because their smaller balance sheets make them more vulnerable to recession. Small-caps, which are typically measured by the Russell 2000 index, act as an early indicator of market direction and broader economic strength. “The small-caps are lagging the large-caps, with nearly all of their post-election outperformance erased,” Rosenberg said.
- Over-Reliance on ‘FAANG’ Stocks: FAANG is short-hand for Facebook, Amazon.com, Apple, Netflix and Google. These five companies make up more than 11 percent of the S&P 500’s total value. That means market direction is very dependent on these five stocks.