The Federal Reserve’s aggressive monetary policy initiative of low interest rates and money expansion has created a lucrative environment on Wall Street that consists of bubbles and massive speculation. One of these sectors that has fallen victim is the technology industry, particularly social media and biotech.
Marc Faber, the legendary contrarian investor and publisher of The Gloom, Boom & Doom Report,” argues that a 30 percent correction in the S&P 500 is due, but doesn’t know when it’ll transpire, according to an interview with USA Today over the weekend.
Faber highlighted that social media and biotech stocks are in the midst of a bubble phase and are highly priced, though noted that the entire sector is in a bubble phase – Faber isn’t the only one to iterate this warning as other investors feel the same. This statement may not surprise many considering that some social networks, such as Yo, a social media app that just sends friends “Yo,” which has garnered $2.5 million in venture capital funding in the past month.
When asked how he thinks the S&P 500 will perform for the remainder of the year, Faber presented the case that it could very well be entering an environment similar to that of the 1987 crash. Since 1929, says Faber, the U.S. has had 15 bear markets that have occurred once every six years – the Federal Reserve’s management of the economy then may very well come into question by central bank critics.
“Do you know how much each bear market has given back in terms of price gains? On average, it’s given back 21 quarters of price gains, or five years,” added Faber. “Let’s consider that all the bulls are right and the market goes up for the rest of the year, and then you give back five years! Then we are in 2015 at essentially the 2010 level.”
If Faber were to acquire stocks today, he would refrain from the U.S. and Europe because the valuations are too high. The next best market would be Asia because these are the emerging markets are the cheapest. “I have some protection, and at least a cash flow at the moment. The risk-reward of buying today is not particularly favorable.”
He was asked if he would identify any positives in the market, in which Faber alluded to the fact that he suggested purchasing stocks as of Mar. 6, 2009, a time when most financial experts and market analysts were bearish. Faber only started to recommend shorting stocks until earlier this year and they have been successful.
In the end, Faber offered this advice to investors: maintain a diversified portfolio of 25 percent in equities, 25 percent in real estate, 25 percent in cash and bonds and 25 percent in gold.
We reported earlier this month that Faber averred that asset prices are in a bubble and are on the verge of bursting. He also explained that the U.S. economy is not improving whatsoever and warned that the “colossal bubble” is coming to a conclusion.