Faber Sees 10% Drop in S&P 500, Says Stocks ExpensiveJanuary 25, 2011, 4:47 PM EST
By Rita Nazareth and Carol Massar
(Updates with details of previous forecasts.)
Jan. 25 (Bloomberg) -- Marc Faber, who said owning U.S. stocks would prove profitable in March 2009 before the Standard & Poor’s 500 Index began a 91 percent advance, predicted today that 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 forecast a drop of as much as 30 percent for equities in developing countries.
The MSCI Emerging Markets Index has increased 134 percent from March 9, 2009. 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 to prevent deflation.
Faber said in an interview with Bloomberg Television on March 9, 2009, that it was “very difficult to see a scenario where you wouldn’t make any money” owning stocks over the next 10 years, while also warning the S&P 500 might lose 26 percent before the bear market ended.
The benchmark gauge for American equities began its biggest advance in five decades that day, climbing from 676.53 to 1,295.02 on Jan. 18, 2011.
In March 2007, 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 a record 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”
--With assistance from Matt Miller in New York. Editor: Chris Nagi
To contact the reporters on this story: Rita Nazareth in New York at email@example.com; Carol Massar at firstname.lastname@example.org