Friday, August 10, 2007

Here comes Mr. Bear?

Posted on Bloomberg news: U.S. Stocks Are at Start of Bear Market, Faber Says

  • Aug. 10 (Bloomberg) -- U.S. stocks are at the beginning of a bear market in which benchmark indexes may fall more than 30 percent, investor Marc Faber said.

    Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, said losses in mortgage-backed bonds are not ``contained or easily solvable'' with interest rate cuts by the Federal Reserve. He predicted in an interview today that the Dow Jones Industrial Average will drop below 12,000.

    Faber said investors conditioned to buy stocks on dips helped push the indexes to records after sell-offs in February and June. Emerging markets are particularly vulnerable to a so- called correction, or decline of more than 10 percent, because investors have bought into them heavily, he said. The MSCI Emerging Markets Index has dropped 9.9 percent since climbing to a record on July 23, cutting its gain for the year to 15 percent.

    The Federal Reserve yesterday added $24 billion in temporary funds to the banking system, the most since April, amid an increase in demand for cash from banks roiled by U.S. subprime loan losses. Traders are speculating that the Federal Reserve will cut interest rates at an emergency meeting as soon as next week, according to Merrill Lynch & Co.

    ``I'm very critical of central banks,'' Faber said. ``They may bail out the system, but there will be a cost, and the cost will be inflation.''

    Market Calls

    Faber told investors to bail out of U.S. stocks a week before the 1987 Black Monday crash, according to his Web site. He correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He also told investors to buy gold in 2001, before it more than doubled.

    On March 29, Faber said the emergence of home loan concerns meant the stock market was unlikely to benefit from the conditions that supported its rally since June 2006. The S&P 500 climbed 10 percent between then and July 19, when it reached a record, and has fallen 6.4 percent since then.