Market Peaks and Excess Liquidity

Marc Faber tells us what he thought of last week’s shudder in the financial markets:

“Markets obviously peak out when everything looks best and bottom out when things look horrible… In this sense we have the goldilocks outlook and things look fantastic. This is precisely the climate in which stocks can make a longer term high and start to decline.

“At every market peak…you have excess liquidity. At the present time a very significant part of what people call excess liquidity comes actually from the American current account deficit. That 800 billion dollars flows around the world and boosts economic activity…

“Credit standards are now tightening. That leaves the consumer in the United States vulnerable…and consumption in the [United States] will hardly grow this year, which means the trade deficit in the [United States] will not expand therefore international liquidity, while still plentiful, will not grow at an accelerating rate…therefore markets may come off quite a bit more than the typical portfolio managers now expect…

“We can easily have a correction of 10-15% on the S&P…followed by a summer rebound, but I doubt that we will make new highs as the economy deteriorates towards the end of the year that will get another big sell-off in equity markets around the world…

“The gold bull market will end when there will be lines of people in front of gold shops buying gold because they want to move out of cash…when they really become afraid that paper money loses all its value.”

Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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