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
“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
“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.”