Every market is a public spectacle. And every public spectacle follows a certain pattern. It begins with lies and humbug – ‘emergency’ low lending rates from the Fed...faith-based currency...stocks for the long-run. Then, it progresses into farce – hedge funds...low-doc mortgage loans...and ‘cove-lite’ LBO financing. And finally, it ends in disaster.
We have seen plenty of humbug and farce. The disaster phase is beginning now. Countrywide Financial (NYSE: CFC ) – America’s largest mortgage lender – may be facing bankruptcy, according to Merrill Lynch (NYSE: MER ). The stock has been cut in half so far.
More importantly, both Home Depot (NYSE: HD ) and Wal-Mart (NYSE: WMT ) – America’s largest retailers – are warning that earnings ain’t what they used to be. Could this be the long-awaited signal that the consumer is finally cutting back? Maybe.
Excerpts from CNBC-TV18’s exclusive interview with Marc Faber:
Q: How do you read the events as they have unfolded in the past fortnight? How do you think this might shape up?
A: Basically as you know, the U.S. market went up until July 16. The Dow peaked out on July 17 above 14,000 and then it started to slide, mainly driven this time by financial stocks and by what people call a crisis in the subprime lending sector and the CDO and the BS markets. The question obviously is where do we go from here? Is it like ’98, where we dropped first and then recovered strongly towards the end of the year? Or is it something more serious? I think it’s something more serious.
Q: If you had to predict...since your view is bearish, what percentage fall would you expect in emerging market equities, on an average, over the next foreseeable period?
A: Well, I think the S&P has a very good chance to decline by 20-30% and emerging economy stock markets, I think they could drop by 40%. That may not mean that the bull market in emerging market is over for good, because in ’87 we had drops in Taiwan of 50% and then the market went up another four times; so you can have big corrections and still be in a bull market.
But if someone came to me and said, “What is the upside on, say, the S&P?” We had 1,452; the high was 1,555. I would say the upside and the big resistance in the market is, say, between 1,520 and 1,530 – so the upside is limited. But what about the risks?
What I noticed is investors are far more concerned to miss the next leg in the bull market on the upside, than about the risks of losing a lot of money. And I think, gradually this will change, and that will mean lower equity prices...and also prices of other assets such as commodities can go down substantially and obviously home prices around the world.
(Watch the entire interview with Marc Faber here. )
We have seen plenty of humbug and farce. The disaster phase is beginning now. Countrywide Financial (NYSE: CFC ) – America’s largest mortgage lender – may be facing bankruptcy, according to Merrill Lynch (NYSE: MER ). The stock has been cut in half so far.
More importantly, both Home Depot (NYSE: HD ) and Wal-Mart (NYSE: WMT ) – America’s largest retailers – are warning that earnings ain’t what they used to be. Could this be the long-awaited signal that the consumer is finally cutting back? Maybe.
Excerpts from CNBC-TV18’s exclusive interview with Marc Faber:
Q: How do you read the events as they have unfolded in the past fortnight? How do you think this might shape up?
A: Basically as you know, the U.S. market went up until July 16. The Dow peaked out on July 17 above 14,000 and then it started to slide, mainly driven this time by financial stocks and by what people call a crisis in the subprime lending sector and the CDO and the BS markets. The question obviously is where do we go from here? Is it like ’98, where we dropped first and then recovered strongly towards the end of the year? Or is it something more serious? I think it’s something more serious.
Q: If you had to predict...since your view is bearish, what percentage fall would you expect in emerging market equities, on an average, over the next foreseeable period?
A: Well, I think the S&P has a very good chance to decline by 20-30% and emerging economy stock markets, I think they could drop by 40%. That may not mean that the bull market in emerging market is over for good, because in ’87 we had drops in Taiwan of 50% and then the market went up another four times; so you can have big corrections and still be in a bull market.
But if someone came to me and said, “What is the upside on, say, the S&P?” We had 1,452; the high was 1,555. I would say the upside and the big resistance in the market is, say, between 1,520 and 1,530 – so the upside is limited. But what about the risks?
What I noticed is investors are far more concerned to miss the next leg in the bull market on the upside, than about the risks of losing a lot of money. And I think, gradually this will change, and that will mean lower equity prices...and also prices of other assets such as commodities can go down substantially and obviously home prices around the world.
(Watch the entire interview with Marc Faber here. )
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