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Portfolio > ETFs > Broad Market

Marc Faber: 3 Reasons a Crash Is Coming

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Marc FaberMore lighthearted fun from Marc Faber (read sarcasm).

Faber is the editor and publisher of the Gloom, Boom & Doom Report, after all, made famous by his spot-on prediction of the 1987 market crash.

He’s long predicted another catastrophic turn, only to be stymied recently. But fear not (or rather fear a lot), the end is nigh.  

Calling U.S. equities a “better sell than a buy,” he provided CNBC with three main reasons for his delightfully pessimistic prediction. An investor in front of a stock board in Shanghai. (Photo: AP)Reason One: The U.S. will follow emerging markets down

It’s been a tough ride for emerging markets recently. For instance, as of Tuesday, the Indian rupee was down 22% against the dollar since January. It’s unlikely to get better, with fears of a hard landing in China, much discussed in the recent past, having once again flared.  BRICS will feel the brunt, according to the other Dr. Doom, Nouriel Roubini.

That has made the U.S. market an outperformer, but Faber believes it cannot last. In fact, he told CNBC, U.S. equities could be hurt by their relative costliness.

“When emerging markets go down and the S&P goes up, the asset allocators say, ‘Do I want to buy the S&P near a high, or do I venture back into emerging economies that are down 50% from their highs, like India or Brazil and so forth?’ So you understand that the pool of money can flow back into emerging markets,” Faber said. A protest Friday in Tunisia against U.S. military intervention in Syria. (Photo: AP)Reason Two: The Middle East will become a ‘disaster’

Consternation and concern over Syria reached far beyond partisan bickering. As the network notes, the market lost half of its gains on Tuesday when House Speaker John Boehner, R-Ohio, said he would support President Barack Obama’s plan to strike Syria.

“The Middle East is a powder keg, and it will go up in flames because the Western imperialistic powers, they still meddle into the local affairs,” Faber said. “It’s going to be a disaster. And it’s going to strike from Syria and Egypt into Saudi Arabia, into the Emirates eventually, and so forth and so on, and you’re going to have a huge mess.” The Federal Reserve Building in Washington. (Photo: AP)Reason Three: Interest rates have become a headwind

Before Syria, there were interest rates. Though Federal Reserve easing has kept rates low by historical metrics, “the interest rate has doubled on the 10-year Treasury note” since the July 2012 low, “despite [Fed Chairman Ben] Bernanke’s maddening asset purchases since September 2012,” Faber said.

So what does that mean for the market?

“Interest rates are no longer a tailwind” but are now “a headwind,” Faber declared, adding that yields will drop even further.

For these reasons, Faber argues, markets are well overdue for a serious correction.

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