Final stages of a global bubble, says Dr Doom

MUMBAI: Marc Faber, the investment guru who predicted the US stock market crash in 1987, says that the markets are in the “final stages of a bubble” and recommended investment in farm land and “assets that are depressed”

Faber, who oversees $300 million in assets at Marc Faber Ltd, told Bloomberg Television in an interview in Zurich: “I think we are in final stages of a bubble, but that final stage can be very steep as we noticed with the Nasdaq in 99 and early 2000.”

The editor and publisher of Gloom Boom and Doom Report said, “unlike the previous investment manias, we actually have bubbles everywhere. We have bubbles in real estate, in equities, in bonds, in commodities, in art prices and totally useless collectibles. So, this bubble is huge and includes just about any asset in the world.”

Since the earlier bubbles were concentrated on a few sectors, when they burst only those sectors were affected.

“From 1921 to 1929, the bubble was concentrated in US equities, and in the 19th century, in canal shares or in rail-road shares or banking shares. In the 70s, it was in gold and silver, in the 80s it was Japanese and Taiwanese shares, in the 90s, it was in one sector TMT (technology media telecommunications). Now there is a bubble everywhere,” he said.

“Now, if all the bubbles burst, you can imagine what will happen to the global economy. And for sure, it will end up very badly. But it’s tough to put a finger and say that it is going to happen tomorrow or in three months or in six months,” he said.

On what is going to burst the US stock market, which is hitting records again and again, Faber said, “It is very difficult to tell. Sometimes, these bubbles burst because they have gone up too much. I would like to say that we have some type of credit bubble in the US. As a result, we have the weak dollar and the rising stock market.”

“I would not call the US stock market the biggest bubble in the world. We have other bubbles that are far greater, such as a Spanish property market or emerging markets that have gone up much more than the US. What about emerging markets such as China, where acceleration in the market has gone more than 85% this year?

Now, the consensus is that the Chinese stock market is a bubble, he said.

Let’s look at the performance from a longer term perspective, similar to what happened in India.

The markets peaked out in 1994 and by 2003 the Indian market was down 70% in dollar terms. Then it started moving up strongly. In China, the market was cutting half between 2001 and the summer of 2005. From the low, the market is now up four times.

“If you look at all the other bubbles I mentioned, these went up by 10 to 50 times. So, I would say that we are in a bubble stage in China but it does not mean that the Chinese market cannot double again from this level,” he said.