Dr Doom predicts crash bigger than ’87: Aussie economist says “rubbish”

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Well-known Swiss investor Marc Faber has issued a prediction that the world will see a worse crash than Black Monday in the next 12 months, but an Australian economist doesn’t buy it.

Last week Faber, who is credited for advising his clients to get out of the stock market before the ’87 crash, said a number of stocks are currently highly vulnerable, CNBC reported.

“They have no earnings. They’re valued at price-to-sales. And this is not a good metric in the long run,” he said. “I think it’s very likely that we’re seeing, in the next 12 months, an ’87-type of crash…and I suspect it will be even worse.”

The investment guru, also known as Dr Doom thanks to his gloomy predictions, said the Federal Reserve was also part of the problem and is a “clueless” organisation.

Faber advised against buying stocks right now.

Last Thursday US technology stocks suffered their sharpest dive in more than two years.

The Swiss investor’s prediction follows warnings from another high profile investor: the co-founder and chief investment strategist at US$112 billion fund manager GMO, Jeremy Grantham.

 He said last month that “the next bust will be unlike any other”, the Sydney Morning Herald reported.

“The Fed and other central banks around the world have taken on all this leverage that was out there and put it on their balance sheets,” Grantham said. “We have never had this before.”

But economist Tim Harcourt, an author, J.W. Nevile Fellow in Economics at UNSW, and the first chief economist of the Australian Trade Commission, told Wealth Professional he doesn’t believe the predictions.

“There are always these speculations but if you look at the fundamentals of the world economy, growth prospects are marginally better,” he said.

 Essential shifts have taken place in the world economy, and for the most part, the worst aspects of 2008 have improved.

The exchange rates are also doing their job, Harcourt said.

“Some people could get their fingers burnt with excess debt, but I can’t see an ’87-type crash happening. From an Australian perspective we’re moving from the mining boom to the dining boom – hence the agricultural aspects of the free trade agreement that’s just being negotiated.”

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  • Heath Visser on 16/04/2014 9:29:52 AM

    Faber predicts a crash every year. By the laws of probability eventually he'll be right.

  • Only the FP industry on 16/04/2014 10:49:25 AM

    I've learnt that since the mid 1980's every single economist has been WRONG IN THEIR PREDICTIONS. One or two guessed the GFC or 1987, but 99.95% of the were WRONG year in year out. I've learnt to ignore their dribble & do my own research. I still listen to their noise but NEVER rely on them. I've done extremely well since I ignored their job protecting fence sitting
    views. Like one economist said at a breakfast decades ago, a good economist is one who can explain why they were wrong better than the rest. Seriously just ignore them.

  • Reg on 16/04/2014 2:21:31 PM

    Share markets go up and share markets go down. Its how you prepare and how you react that really matters.

  • Innocent Observer on 17/04/2014 10:54:34 AM

    Public forum economics is like nearly anything: the upside from making a bold prediction and getting it right (you're now famous! ...hosting CNBC, writing books and reading tea-leaves!!) far outweighs the downside from getting it wrong (your predictions will be forgotten).

    If you want to make predictions do your own research (read the hard numbers; don't rely on - or even read - media reports). Take a view. Then play the "devil's advocate" and try to dismantle it. If it still stands, with sufficient credibility and robustness, then you might be on the right track.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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