Dr. Doom warns of stock market selloff 'avalanche'
The Swiss investor doesn’t expect the rally's disruption to be evoked by any catalyst, as the markets are 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. I would underweight US stocks,” Faber said in an interview with CNBC.
This bearish forecast is not tied to President Donald Trump, according to Faber.
“One man alone, he cannot make 'America great again.' That you have to realize. Trump, unlike Mr. Reagan, is facing huge, huge headwinds — including a debt to GDP that is gigantic, as it is in other countries,” he said.
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 an eleventh consecutive session on Friday 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 look at Trump and his administration, and the way the budget is, I think further money printing down the line is inevitable,” he said, stressing that such a policy could push commodities even higher.