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Dr Doom: Gloomy Future for Market; Hold Cash or Short
Aspire, Thought Leaders | 23 October 2015
By: Lim Si Jie
Articles (169) Profile

 

Dr Doom: Significant Correction Ahead

Once again, Marc Faber (aka Dr Doom), publisher of the Gloom, Boom & Doom Report, laments that the Federal Reserve should have started raising rates years ago.

Dr Doom forecasts that stock markets could be on the verge of yet another “very significant correction,” perhaps one as bad as the 1987 crash. Dr Doom warns that the market will enter a longer-term timeframe of unattractiveness and where prices may actually go significantly lower.

A Repeat of 1987, or Worse?

“For example, it could be like 1987, where at some point we have a very significant correction,” warned Dr Doom. On “Black Monday,” October 19, 1987, stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin.

While Dr Doom does not believe the market will crash right away, he does not rule out such a possibility.

Slowing Economy

Dr Doom’s view on the global economy is that it is slowing down remarkably, especially as the slowdown in China creates a butterfly effect on the world. On top of a slowing global economy, weakness in the euro and the Japanese yen has not only further added to the woes of a dawdling global GDP in US dollar terms, it also lowers demand for goods from around the world. In other words, world trade is going down and the US is obviously affected.

Stock Market Bubble

He added that the current economy faces a variety of problems. There is huge asset inflation that has now created a stock market bubble. The low interest rates have forced investors to adopt riskier assets in their portfolio to achieve better market returns. Once interest rates return to “normal”, there will be an exodus from stock market. Add plunging oil and metals prices to the situation and the world could have the recipe for disaster. Judging from the current sticky situation the US and the world are in, Dr Doom believes that it would be very difficult for the Fed to raise interest rates at the present time.

Gross: Assets on Course for Negative Returns For The Year

Other experts have also recently painted a troubled future for the US economy. Bill Gross, for instance, predicted in January that many asset classes would end the year lower. He also expects US equities to have another 10 percent to fall and investors should sit out the current volatility in cash.

The whipsaw market reaction to the lacklustre U.S. jobs report for September shows that markets, especially stocks, high-yield bonds and some emerging market debt, are trading like a casino.

Investors Takeaway: Hold Cash or Short Indexes

Dr Doom’s view that the asset market is now largely inflated means that investors are able to cash in on significant gains while the market is sitting at the peak. While cash doesn’t yield anything, the advantage of holding cash is that it doesn’t lose anything and there is no potential loss of capital. Although some may argue that there will be losses due to inflation, deflation is actually much more common during an economic downturn.

Shorting Index: DBX S&P500 INV (SGX: HD6)

Investors with higher risk appetite can also participate in the correction through ETFs such as DBX S&P500 INV. The S&P 500 Total Return Short Index is an index that is linked inversely to the performance of the blue-chip index S&P 500 TR Index. A positive change of the S&P 500 TR Index will result in a negative change of the same amplitude in the Index.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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