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Is Marc Faber’s Stock Market Correction Finally Coming Due?
Nearly five months have passed since Marc Faber’s prediction of a 10% correction in U.S stocks. It hasn’t happened. Will the month of March be the charm? Speaking with Margaret Brennan on Bloomberg Television’s Oct. 26 edition of “InBusiness,” Marc Faber, dubbed Dr. Doom, said, “We are in the inflation trade again,” underscoring “a weak dollar, strong precious metal prices, strong equity prices especially in emerging markets and now in frontier markets, plus strong industrial commodities.” “So, I think a correction is overdue,” he asserted. Three months later, the pony-tailed, eclectic, Swiss hedge fund manager – who features a medieval-style 17th century plague painting by Kaspar Meglinger, titled Dance of Death, on his Web site’s home page – reiterated his call for a 10% correction in U.S. stocks on Jan. 25. “A correction is coming,” Faber said in an interview from Zurich on Bloomberg Television’s “Street Smart.” However, “equities in the U.S. will go down less than emerging markets,” he stressed. Faber expects a much steeper correction of as much as 30% in an overseas equities, which he has frequently said is a “crowded” trade. Six weeks since Faber’s Jan. 25 interview, U.S. equities still remain relatively resilient in the wake of spiking oil prices, continuing housing price declines, and lingering questions of the U.S. economy’s ability to create jobs and robust consumer spending again without help from a generous Fed. The Wall Street adage “climbing a wall of worry” has crept into analysts’ repertoire of responses to media questions concerning the S&P500?s stubbornness to relent to the threat of an oil shock to an anemic (at best) U.S. recovery. But evidence of a crack in the wall may have developed, supporting Faber thesis of an overdue correction about to become due. The watch dog blog of everything financial, ZeroHedge.com, posted an observation by Credit Suisse on Mar. 8, which suggests the divergence between the gold price and the price of the economic bellwether base metal, copper, could be signaling a tidal shift toward a risk-off trade is around the corner. “As Credit Suisse points out, today the Gold/Copper ratio is up by over 4% to 3.32, which happens to be the biggest one day move since June 29, and confirms that not only the copper run may be over, but that derisking and the flight to safety trade is truly back on,” writes the site’s blogger, Tyler Durden (screen name). An hour later,
Durden added another “did you know?” factoid about the
normal correlation between crude and stocks moving too far away
from the mean, fueling the Faber thesis of a risk-on trading herd
maybe ready to finally flee the burning building. “The last
time WTI to Stocks hit a correlation of -0.5 is just after the market
peaked in late 2007, early 2008, as the market had started its decline,
which culminated with the global sell off of everything not nailed
down, bringing the S&P to 666,” Durden reminded readers
of what he wrote in a post of a week earlier. March 14, 2011 © 2011 Beacon Equity Dr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow's Gold.
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