The man who predicted the 1987 stock market crash and the recent global economic recession believes the worst crash in decades will take place later in the next 12 months.
Dr Marc Faber, a Swiss investor and the author of the Gloom, Boom & Doom Report, said the cause of the crash would be overvaluing of companies within the internet and biotechnology sectors – thought to include the $400billion valuation of Google, and the $100billion valuation of Facebook.
He also said the market was also beginning to wake up to the idea that the U.S. Federal Reserve is a ‘clueless organisation’ – something he says is starting to affect confidence levels in investors.
Cost: Dr Marc Faber said the cause of the ”87-type crash’ he is predicting would be wild overvaluing of companies within the internet and biotechnology sectors
Speaking to CNBC last night, Dr Faber 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.’
His comments came as the Nasdaq suffered its biggest drop in two-and-a-half years after another sharp selloff in biotechnology businesses – including Gilead Sciences and TripAdvisor.
The Nasdaq biotechnology index shed 5.6 per cent of its value – its biggest one-day drop since August 2011 – increasing investor anxiety about a broader pullback in technology businesses.
Speaking of overvaluations in the technology sector, Dr Faber told CNBC’s Futures Now programme: ‘I think there are some groups of stocks that are highly vulnerable because they’re in cuckoo land in terms of valuations.’
‘They have no earnings. They’re valued at price-to-sales. And this is not a good metric in the long run,’ he added.
High values: In August last year the social network Facebook was valued at a staggering $100billion
Fall: Dr Faber’s comments came as the Nasdaq suffered its biggest drop in two-and-a-half years after another sharp selloff in biotechnology businesses – including Gilead Sciences and TripAdvisor
Dr Faber said overvaluations would not be the only cause of the ”87-type of crash’ he is predicting, adding that the U.S. Federal Reserve would have to shoulder just as much blame.
‘I believe that the market is slowly waking up to the fact that the Federal Reserve is a clueless organization…They have no idea what they’re doing. And so the confidence level of investors is diminishing, in my view ‘ Dr Faber said.
He said that as investors come to terms with the Federal Reserve’s failings, the market will experience a decline by 20 or 30 per cent.
Despite Dr Faber’s track record for predicting economic crises, there are many that disagree with his conclusion that ‘now is not a good time to buy stocks’.
Just last week Bill Miller – the legendary stockpicker and chairman and chief investment officer at Legg Mason Capital Management – said the conditions for a bad market ‘simply do not exist’.
Dr Faber also made a prediction last August that a stock market crash was imminent, but S&P 500 stock prices have remained around 9 per cent high since that announcement.
