Marc Faber Warns of Another Market Crash
Many have expected a financial crisis in 2017. Some may have even hoped for one, thinking it would cause a big dent in President Donald Trump’s popularity. In August and September, as if taking a sigh of relief, investors pushed the pedal to the metal. For much of 2017, the markets have performed as if nobody even wonders, “Will there be another financial crisis?”
Ten years after the subprime crisis, the ever-crazier world of stock markets is on the verge of a new financial bubble. As it happens, it’s no time to consign stock market crash predictions to the closet of obsolescence.
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Also Read: “Economic Crash 2017” and How Next Financial Crisis Could Be Worse than 2008
Certainly, anybody who thinks that stocks can’t possibly come down from their lofty valuations might want to look at Marc Faber’s predictions. Faber is a skeptic when he’s in a good mood; he’s a financial catastrophist for most of the year. Skepticism has kept him rich; Marc Faber’s net worth is in the millions of dollars.
But Faber famously keeps a big chunk of his portfolio in gold. He’s a director and shareholder at NovaGold Resources Inc. (NYSEMKT:NG). So, he’s not one of those “do as I say, not as I do” types. He’s one of those rare investment gurus who invests according to his own advice. So, if Faber warns that a stock market crash is coming, he believes it to be a real possibility.
Sometimes, Marc Faber’s predictions take a few years to materialize, yet there’s no doubting his prescient talents. In February 2010, Faber predicted that the U.S. economy would experience tough times. He suggested acquiring gold and properties in the countryside, because popular unrest would reach a peak. The unrest of which he speaks is on its way, but it will likely hit in 2017 or 2018. In many ways, Faber has already been proven right.
The disruption of which he spoke has already materialized in the form of Trump’s election as president. This event has already overturned the establishment, for better or for worse. The next phase is already brewing; the stock market crash that’s coming could be the opening salvo for the next American civil war.
Faber’s Latest Warnings Start from the Basics of America’s Economic Power: the U.S. Dollar
The U.S. dollar has had a tough year, dropping almost 10 percent since the beginning of 2017. In contrast, the euro and peso have risen. In a slightly longer time frame, Faber is very skeptical about the dollar, saying that he is “not optimistic” in the long run. Faber, who suggested last June that stocks will fall some 40%, says that a market crash will happen when we least expect it. (Source: “The party will end when you least expect it — what Marc ‘Dr. Doom’ Faber says could trigger the next crash,” CNBC, September 20, 2017.)
Faber makes a clear point that can always make for valid advice. He sees investors as too complacent; stocks are going up, but nobody can explain why. Thus, when something big does happen (I like the expression “black swan”), nobody will see it coming, and most people will lose.
One of the incongruities of the U.S. market now is the level of mistrust of the current presidential administration. The falling dollar is one of the main signs of this lack of confidence. There is a sense that Trump’s economic policies will harm the U.S. in the long run. Thus, Faber wonders, why Americans even voted for Trump. The situation is loaded with risk. The dollar is already behaving accordingly, but the markets have resisted the current. How much longer can they keep swimming against it?
Just Don’t Say You Didn’t See It Coming
As Faber puts it, the trigger for the next major market correction and financial crash could be any number of scenarios. But the most obvious one might be a “credit event.” Even more likely, the inevitable rise in interest rates (which the Federal Reserve has already stated it would enact) could trigger a catastrophic crash.
Faber does not specify the current American policy that he worries about the most. It seems to be a combination of factors, which highlights the shakiness of the entire financial system.
Many investors have looked forward to President Trump’s promises of tax cuts and fewer restrictions on business. But Trump has also hinted at throwing America into a series of military and trade wars of highly dubious benefit. Amid protectionist policies and trade wars with China and Germany, trump has threatened to wage all-out war against North Korea and to undo the nuclear deal with Iran.
The stock exchanges have set successive new records. For example, the Dow Jones has climbed higher than 22,000 points. But October, historically a month when investors take stock of their portfolios, has been known to produce shattering results (see the years 1929 and 1987). Financial crises have always come as a result of periods of excessive euphoria. They appear on average every 10 years.
These cycles were described at the end of the 19th century by the French economist Clement Juglar. According to Juglar, market cycles are punctuated by three phases: expansion, crisis, and liquidation. So far, every market crisis has followed this pattern. (Source: “Juglar,” Cycles Research Institute, last accessed September 25.)
As the temperature rises and falls, a market crash is possible in October, even over something as simple as profit-taking. The markets remain vulnerable to a number of events, especially of the geopolitical variety.
