Marc Faber: Three reasons a plunge is coming
If you want to hear a rosy view on the market, you'd better not listen to Marc Faber.
The editor and publisher of the Gloom, Boom & Doom Report has long held that a correction was coming—and even though that thesis has not exactly played out this year, he's standing by it.
"In my view, we'll go back to the lows in November 2012—around 1,343" in the S&P 500, Faber said. Overall, he considers U.S. equities a "better sell than a buy."
On Tuesday's "Futures Now," he provided three three main reasons for his bearish view.
Reason one: The U.S. will follow emerging markets down
It hasn't been an easy summer for emerging markets. In the period of a month and a half, the iShares MSCI Emerging Markets ETF (which tracks emerging markets' large- and mid-cap stocks) lost nearly 20 percent of its value and has hardly bounced back from the lows.
That has made the U.S. market an outperformer, but Faber believes it cannot last. In fact, he said, U.S. equities could be hurt by their relative costliness.
"When emerging markets go down and the S&P goes up, the asset allocators say, 'Do I want to buy the S&P near a high, or do I venture back into emerging economies that are down 50 percent from their highs, like India or Brazil and so forth?' So you understand that the pool of money can flow back into emerging markets," Faber said.
Reason two: The Middle East will become a "disaster"
The stock market has lately been hurt by the concerns about U.S. military action against Syria. In fact, the market lost half of its gains on Tuesday when House Speaker John Boehner (R.-Ohio) said that he would support President Barack Obama's plan to strike Syria. But Faber believes we haven't seen anything yet.
"The Middle East is a powder keg, and it will go up in flames because the Western imperialistic powers, they still meddle into the local affairs," Faber said. "It's going to be a disaster. And it's going to strike from Syria and Egypt into Saudi Arabia, into the Emirates eventually, and so forth and so on, and you're going to have a huge mess."
(Read more: Syria continues to be your reason to buy oil)
Reason three: Interest rates have become a headwind
Before Syria became a concern for the market, the focus was clearly on interest rates. Though Fed easing has kept rates low by historical metrics, "the interest rate has doubled on the 10-year Treasury note" since the July 2012 low, "despite Mr. Bernanke's maddening asset purchases since September 2012," Faber said.
So what does that mean for the market?
"Interest rates are no longer a tailwind" but are now "a headwind," Faber declared, adding that yields will drop even further. In fact, he advocates buying bonds as a safety trade, because he thinks that after the market drops, deflation concerns will come to the fore.
(Read more: Here's what Marc Faber likes more than gold)
All in all, Faber contends that the market is well overdue for a correction.
"We're up almost 70 percent in two years, and the economic expansion is 4-years-old already," he said. And with emerging markets a mess, the Middle East highly volatile and rising Treasury yields, "where are the earnings going to come from?" Faber asks.
Of course, the question is rhetorical. And Faber thinks that by the time the market fully comes around to his line of thinking, it will have corrected by some 20 percent.
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This story has been updated to reflect Faber's opinion on the direction of interest rates.