Marc Faber, investment guru and the editor of the Gloom, Boom and Doom report, warned on Thursday that stock markets -- particularly in the United States -- were vulnerable to sharp falls.
U.S. stocks jumped on Wednesday after minutes from the Federal Reserve's last meeting had central bankers discussing ways to normalize interest rates. The Dow Jones Industrial Average leaped as much as 170 points, and ended up 158.75 points, or 1 percent.
A bull run in equities that started around five years ago has caused much debate in recent months with some investors believing that it may be running out of steam. However, some remain optimistic that extra liquidity—provided by central banks around the world—would continue to help bolster the asset class.
"I don't regard this as a very healthy market, " Faber told CNBC from Singapore. "The U.S. market is in a very dicey position where it could easily drop 10, 20 percent." He pointed out that many stocks are already down 10 to 20 percent, such as momentum stocks which include high-flying technology and biotech shares.
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He said he did not feel comfortable putting all his money into equities at the present time and owning 10-year Treasury notes gave him some security. As money moves out of risky assets, Treasurys could benefit, he argued.
Faber conceded there was "nothing attractive about 10-year notes yielding 2.55 percent", but to own U.S. Treasurys was "in a way an investment that gives you a small yield, better than cash". That was particularly true in light of the likelihood of the dollar rallying further against the euro, he said. "That would again speak for owning some U.S.-dollar assets."
Equity markets were "relatively expensive", he said, although Europe and emerging markets represented better value. "If I were to buy equities I would rather go into emerging economies, but I don't think there is a hurry."
"I think we are bracing for a general asset deflation," Faber said. "I think the system is still very vulnerable. I'm not predicting a complete collapse because money printing can go on almost endlessly but it will have...unintended consequences."
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