Markets Will Punish Central Banks: Marc Faber
Extensive monetary easing has dangerous side effects and markets are sure to punish central banks for their mistakes, veteran investor and the author of the Gloom, Boom & Doom Report, Marc Faber, told CNBC on Thursday.
Since September when the U.S. Federal Reserve and the European Central Bank announced their asset-buying plans, stock and bond markets have been on a roll owing to easy liquidity conditions. The S&P 500, for example, has rallied over 10 percent to over 1,500 from a low of 10,801 seen in mid November, and Treasury yields though now climbing again have been at historic lows. Faber warns that an "uneven flow of money" could prompt a collapse in the bond market and lead to a stock "bubble".
"When you print money, the money doesn't flow evenly in an economy. It flows to some people or to some sectors first, and in this case, it flowed into equities, and until about five months ago, bonds… I believe that markets will punish central banks at some stage through an accident," Faber told CNBC's "The Call."
"Either the bonds market will collapse, bonds have been actually very weak considering the unlimited quantitative easing of the Fed. The other thing is that stocks could go into a bubble stage," he added.
U.S. Treasury yields have climbed 23 basis points since January 1. But major Asian markets together with European and U.S. stocks have seen strong rallies this year. While London's FTSE 100 has rallied nearly 6 percent since the start of the year. Japan's Nikkei 225 is up roughly 3 percent and the Shanghai Composite has risen 4.3 percent. But Faber warns global stocks are starting to look too expensive, particularly within Asia.
"The stock market is not that cheap anymore. Here in Asia we have many markets that are up 250 percent from the lows. That is not very inexpensive anymore. Let us put it this way...the stock market is discounting already a lot of the good news," he said.
However, Faber, who is well-known for his extreme bearish views on the market, said he is the happiest he has been since the financial crisis and is gearing up for a market crash, which will give him the opportunity to snap up bargain stocks.
"For the first time in four years, since the lows in March 2009, I love this market because the higher it goes the more likely we will have a nice crash, a big time crash," he said.
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In his view, the time when markets are thriving is the perfect opportunity to sell, and conversely an extremely depressed market presents an ideal buying opportunity.
"A year ago, the mood in Europe (owing to the euro zone debt crisis) was horrible and nobody could see how on earth stocks could go up. Now since May 2012, less than a year ago, Portugal, Spain, Italy, France, are up between 30 and 40 percent and Greece has doubled...the stock market in Greece has doubled. So you need to buy stocks when there's no reason to buy them," he said.