With the Federal Reserve planning to taper its bond-buying quantitative easing program by as much as $20 billion, will the stock market plunge by double digits because it won’t receive as high an injection? Marc Faber thinks so.
Faber, publisher of the Gloom, Boom & Doom Report, spoke to CNBC on Wednesday to talk about the Fed’s QE initiative and how it will affect the stock market. Faber believes the market will plunge by as much as 30 percent, but he hopes it will drop by 40 percent so stocks could seem attractive to buy again.
“I think the market is way overdue for a 20 to 30 percent correction,” said Faber. “In fact, I’m hoping for the market to drop 40 percent so stocks will again become — from a value point of view — attractive.”
The reason why stocks are projected to decline significantly is because they have received an artificial boost over the past few years because of Bernanke’s QE measures. According to Faber, QE has benefited asset prices and has instigated asset inflation, but has hurt the overall economy and the American people.
“It has lifted asset prices and created asset inflation, but it hasn’t lifted the standard of living of most people in the U.S. nor worldwide,” stated the contrarian investor, who has been criticized by some other financial experts.
Ethan Anderson, senior portfolio manager at Rehmann Financial, told Bloomberg News that there is no evidence whatsoever to suggest that the stock market would drop. Instead, he says, the economy is healthy and “we’re pretty much in a very healthy pullback.”
Meanwhile, some Fed critics definitely realize the stock market will collapse because it has been relying on monthly central bank injections for so long. Akin to what David Stockman, former Reagan budget director, said last year: “The minute the Fed stops the whole environment changes, the confidence changes, the psychology changes and the bubble is revealed. This is the greatest bubble yet.”
Indeed, the fundamentals of the economy are not sound.