Marc Faber has stated in an interview* on Bloomberg Television that “I think the market will have difficulties to move up strongly unless we have a massive QE3 (something Faber thinks would “definitely occur” if the S&P 500 dropped another 100 to 150 points. If it bounces back to 1,400, he said, the Fed will probably wait to see how the economy develops)….. If the market makes a new high, it will be with very few stocks pushing up and the majority of stocks having already rolled over….If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Words: 708
So reports Katchum (www.katchum.blogspot.ca) in edited excerpts from his original article**.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Katchum goes on to say, in part:
Faber went on to say that equity markets this year resemble 1987 as they had a “very strong start” followed by a “correction,” reiterating that “If we have a rally into August it could resemble 1987 with a crash in the fall.”
Marc Faber is known to have accurately predicted the October 19th, 1987 crash [when the Dow Jones Industrial Average underwent the biggest crash since 1914 plunging 23%, triggering losses in stock-market values around the world. The Standard & Poor’s 500 Index plummeted 20%. While the Dow closed 2.3% higher in 1987, and the S&P 500 2% it still is something we should prepare for.
As we already can see on the federal balance sheet, there has not been any QE3 since July 2011 (Chart 1).
What happened in 1987 (also known as Black Monday) and should one invest to protect oneself? Let’s review each asset class and see how they all fared back then.
The Dow Jones Industrial Average (DJIA) dropped 22.61% on Monday October 19, 1987 .
- Considering the fact that the Dow/Gold ratio was lower in 1987 than it is now, I predict that such a crash would be even greater were it to happen again this year. As such, I believe you should get out of stocks as soon as possible [just to be on the safe side].
- IMO the Dow/Gold ratio is going down anyway, so the Dow will underperform gold.
- Emerging market stocks would likely be hit even harder as back in 1987 Australia fell 42% and New Zealand 60%.
U.S. treasuries were a safe haven during the crash. The yield on 30 year U.S. treasuries fell from over 10% to 9% (Chart 2).
The 1987 crash was based on the bursting of the real estate bubble, just like in 2008. From 1984 to 1988, home prices doubled on average. After the crash of 1987, the economy deteriorated and real estate plunged in specific parts of the U.S, with a delay of 1-2 years. Real estate prices had only recovered back by year 2000 so holding real estate isn’t such a good idea.
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The origin of ”cash is king” is not clear, but is possibly derived from the Black Monday crash. It was used in 1988, after the global stock market crash in 1987, by Per G Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo. Needless to say, cash was a very good bet during the 1987 crash.
**http://katchum.blogspot.ca/2012/05/1987-aka-2012-crash-by-marc-faber.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+KatchumsMacro-economicBlog+(Katchum’s+Macro-Economic+Blog) (To access the articles please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Investors are being told that the worsening sovereign debt crisis in Europe will leave the U.S. economy unscathed….[because,] since we don’t make many things to export to Europe, our GDP won’t suffer a significant decline at all…. What [has been] conveniently overlooked, [however’] is the fact that 40% of S&P 500 earnings are derived from foreign economies and the seventeen countries that make up the Eurozone have collapsed into recession. [Let me explain what effect that will have on the performance of the S&P 500 this summer.] Words: 325
Charles Nenner has been accurately predicting movements in the liquid markets for more than 25 years, and his most recent cycle analysis predicts that the current stock market rally is going to last through Q2 and then begin a major descent in 2013 – with the Dow eventually reaching 5,000! Read on to learn how Nenner’s unique system works and what he forecasts for commodities, currencies, bonds, interest rates and more. Words: 400
With the S&P 500 at its highest level since the summer of 2008, investors previously sidelined by reoccurring fears of a double dip recession and nagging worries about a disorderly Greek default may now be tempted to hold their noses and dive into the market where, presumably, they will be swept along to the land of outsized profits by the Dow 13,000 wave. Having said this, it is worth noting that often the best time to sell is when everyone else is buying. Now may be that time. [Let me explain.] Words: 885
At the end of November 2011 the U.S. behavioral indicator for the U.S. stock market, based on insights on investor psychology, touched the crisis threshold for the fifth time (1971,1979, 1986, 2006) since 1970. If the current case follows the four prior cases, we expect a similar positive return from November 2011 to the end of October 2012 as in the four prior periods followed by a decline somewhere between 15% and 30%. [Let me explain.] Words: 317