Marc Faber, the publisher of the Gloom, Boom & Doom Report, is typically optimistic on equities as an asset class.
However, Faber told CNBC that he expects a correction in global stocks in the near term:
“Markets are overbought, technically they have deteriorated, and we have very heavy insider selling, so I think a correction is coming. …I don’t think (investors) should be shooting for huge gains, but rather for preservation in capital.”
Faber said while the government bailouts and monetary easing had benefited Asia, the current optimism is only transitory and the whole system will have to be reset one day:
“I think they can postpone it with monetary measures and fiscal measures for another few years but one day the whole system will have to be reset. The question is what do you do as an investor between now and the reset when the computer crashes and the whole financial system ceases to exist.
…Like if you have a drug addict people say the economy is recovering. Well yeah if you have a bar and you give free alcohol then everybody is happy for a while, and you know they have a hangover, you have to give them again white beer in the morning to make them feel good. With these bailouts and these easy monetary measures people feel good and for a while the economy recovers, disappointingly it doesn’t help really the standards of living.”
Continuing along the same thread, he told CNBC the S&P has done well so far because of QE1 and QE2, and said a third round of easing in the U.S. would depend on whether the S&P drops 100 – 200 points.
For now, Faber said the ideal asset allocation is 25 per cent each in equities, real estate or real estate related equities, cash, and gold
Watch the entire interview at CNBC: