Dr. Doom's Back: Marc Faber Warns Markets Will Fall "Like An Avalanche... Trump Can't Stop It"

'One man alone cannot make 'America great again'. That you have to realize," warns Marc Faber, the editor of "The Gloom, Boom, & Doom Report," reminding the world that the US stock market is vulnerable to a seismic sell-off that won't be caused by any single catalyst. His argument: Stocks are very overbought and sentiment is way too bullish for the so-called Trump rally to continue.

"Very simply, the market starts to go down. As it goes down, it will start triggering selling, and then it will be like an avalanche," said Faber recently on CNBC's Futures Now. "I would underweight U.S. stocks."

Faber, a supporter of President Donald Trump, isn't blaming the new administration for his bearish forecast:

"Trump, unlike Mr. Reagan, is facing huge, huge headwinds — including a debt to GDP that is gigantic, as it is in other countries."

Faber lists rising interest rates and record earnings and margins as additional risks to the historic rally.

The Dow Jones Industrial Average closed at a record level for a twelfth consecutive session today with the S&P 500 to see the fewest declines in February than in any month since May 1990.

The investor said that markets in Mexico, Brazil, and Asia also have been picking up significant gains so far this year. However, Faber doesn’t expect the worst-case scenario for all countries that have been benefiting from a strong run.

“China looks quite attractive. For the next three months, money can flow into China. The economy, surprisingly, has begun to do quite well. We see that in retail in Hong Kong. We see that in the hotel industry, and we see that in demand for commodities,” he said.

Faber says that resource commodities such as copper and gold would probably bring the traders solid profits this year.

When you go to your broker and buy stock, you are not “giving money to the company”. You are buying “used” stock, in the same way that if you buy a used Chevy, GM makes nothing on it. The only way a company acquires money spent buying stock is at the moment a stock goes IPO or if there a secondary offering and the co sells “newly issued” stock. That original money used to buy stock goes to the company selling their paper. Otherwise, if you just buy shares of ATT or AAPL, you are buying “used” shares that might have been sold a zillion times or one time. (By the way, that’s why, when some organization wants to divest of its Caterpillar stock because this one type of people bulldoze the slums of other people and supposedly expropriate their land it has essentially zero effect upon the company and so the exercise of selling the stock is goofball.)

Now, you could certainly say that 99.999% of companies retain some (in some cases lots of) stock on their books and the continued (or not) interest of the retail and institutional public in retaining that stock and not selling it all en masse helps keep the price of that stock up and thus, since all [common] shares are considered to be valued equally, that helps elevate or at least maintain the value of the company’s so-called “treasury” stock. Fair enough.

I appreciate what you are saying as to dividends, eg “why own stock if it pays no divs?” and that is one among several approaches to stock investing. It is also the case that the market can assign a value to a stock, div payer or not, that advances mightily, far beyond what yer typical div paying stock does. Dominoes Pizza was a $5 stock ten years ago and is $185 today. And of course MSFT et al, the DPZ example shows that a stock need not be a whizbang tech leader or a cancer cure formulary to experience huge gains over time.

Good div paying stocks are probably the most conservative and as you say “more realistic” but there is nothing as realistic as the number in the lower right of your brokerage statement. Philip Morris PM has made a very nice swing of late from 95 to 108; while VZ and T are kind of waddling around doing nothing in particular. (These are fat div payers) We are in a market phase where people think rates are rising, thus the big div payers (which act like bonds in some ways) are a bit shunned and people are more interested in flyers. This too shall pass.

The market, in my opinion, is (after this huge post election ramp) kind of waiting around to see what tax relief might be granted to corporations; inclusive of repatriation relief. Smart or dumb, any given company that gets a tax break from 35% to 15% is probably going to be worth maybe 15% more, and maybe overnight, so that is a thing IMO many people are kind of waiting around for. And it’s well worth waiting around for (by “waiting around” I mean hanging in with their long stock and not selling [even] at these elevated levels because that 15% ramp is 3-4+ years of dividends even if you are a dividend hog.

No_body_knows_how_markets_behave_at_all_time_highs. Just think about that.

The stock market is experiencing rational exuberance. While Obama was president he eliminated the rule of law by firing the president of a Fortune 100 company and taking it over. The president decided to forego the law and give part of the company to the workers. He also forced the secured bond holders, who should have been taken care of first, according to 200 years of law, to take a haircut. It looked like the US was becoming a socialist state and companies do not fair well in socialist states. The president created risks, or the appearance of risks that were unknown. Companies only invest when they can bound the risks, so every company in the US and abroad sat on some fifteen trillion dollars in cash...for eight years.

Now, Trump has brought back the rule of law with a BANG! Risks can again be predicted and planned for. Companies have dug under their metaphorical mattresses and produced their cash. They are looking at their cards and they are back in the game.

The current stock market, while probably higher than it would be given the same conditions minus the Obama presidency, is driven by investors and companies who are exuberant and relieved to get back to the job of creating wealth that will belong to them; not to somebody who will say, “You didn’t earn that. You didn’t make that.”

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