Opinion: Stocks likely to plummet 40%

If a prediction by Marc “Dr. Doom” Faber is anything to go by, then stocks are expected to take an unsteady downward trajectory of 40% or more and it is going to end extremely bad.This situation would put investors on a rush to cash out so as to remain cushioned from the losses.

The Thailand based Director of Marc Faber Ltd and editor of the monthly investment newsletter, The Gloom, Boom and Doom Report is known for his uncanny speculations on the stock market and commodities.

He considers the sudden rise of the FANG(Facebook,Apple,Netflix and Google) stocks in the market as an indication of an oncoming bearish market.

“We’ve had more than eight years of a bull market. The Nasdaq is being driven by very few stocks. That rally is not a particularly health sign from a technical point of view, and valuations are very high,” said Faber. He expressed this on Friday’s “Trading Nation”. This comments come exactly two weeks after Nasdaq recorded its all-time intraday record high of 6341.70.

“You know we have a lot of volatility and when things will start to go down, they’ll go down a lot,” added Faber.

Economists say that, if a plummet of such magnitude were to occur, the S&P 500 Index would fall from Friday’s closing price of 2,483 to 1,463.

Faber notes that there has been a reorientation of wealth which is now flowing and being held by big corporations and affluent people and this imbalance, he predicts could cause a disorder in the stock market which could be “massive”.

“Either people with money will be taxed heavily or we’ll have a massive deflation in asset prices, I repeat massive. Eventually the system will break,” said the seasoned bear investor.

However, he notes that there is a possibility of printing more money to cushion the market from this effect, but all in all the ending would still be dire.

“We could print enough money that the Dow goes to 100,000. All I am saying is it will end extremely badly,” Faber said.

However, Faber still sees a glim of hope as such a sharp decline would give investors an unusually large opportunity of buying more cheap assets as it happened in 2003 and 2009 deep corrections. This is because, when a significant number of stock investors take a similar action at the same time, conditions would be generated and the situation would call for significant corrections.