Originally published November 15 2012
Marc Faber: Watch for massive market meltdown as corporate profits sink
by J. D. Heyes
(NaturalNews) A noted expert says it's not the tsunami of tax hikes and spending cuts coming down the pike that will bludgeon the nation's economy in the coming weeks, but rather a raft of poor corporate performances and a lack of global growth that will take their toll on the markets.
Marc Faber, author of the Gloom, Boom and Doom report, told financial network CNBC this week that the markets are set for a meltdown soon and could lose as much as 20 percent of their value.
"I don't think markets are going down because of Greece, I don't think markets are going down because of the 'fiscal cliff' - because there won't be a 'fiscal cliff,'" said Faber - referring to mandatory spending cuts and tax increases that are set to take effect Jan. 1, barring congressional action - told the network's Squawk Box program.
"The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view," he told the program.
Some degree of fiscal pain is needed
In fact, he noted, the market decline has already begun. To underscore his concerns, Faber, known for his bearish views, cited technology giant Apple, a company that has posted disappointing earnings in recent months, causing its stock to tumble 20 percent from September highs. Apple's stock has fallen 14 percent in the last month alone.
Additional figures from other companies show similar dismal results. Corporate giants Amazon, McDonald's, and Google have all damaged investor sentiment in the past few weeks.
Faber went on to argue that the fiscal cliff would actually involve some minor tax increases in "five years' time" and some spending cuts "in 100 years."
The reality is the U.S. needed some fiscal pain, said Faber, as demonstrated by the eurozone's austerity measures that government leaders there are attempting, with mixed success, to close gaping budget gaps.
"There will be pain and there will be very substantial pain," Faber said. "The question is do we take less pain now through austerity or risk a complete collapse of society in five to 10 years' time?"
He also noted that there was simply no political will in the White House or Congress to seriously tackle overspending and the shredding of the U.S. budget.
"In a democracy, they're not going to take the pain, they're going to kick down the problems and they're going to get bigger and bigger," he said.
'We'll be lucky to have 50 percent of the assets we have today'
The economic guru said there were several issues hampering an economic recovery. One of them was the nation's real estate market, which he said was way "overbuilt." In addition, he said there was much more deleveraging of debt ahead.
According to Investopedia:
Companies will often take on excessive amounts of debt to initiate growth. However, using leverage substantially increases the riskiness of the firm. If leverage does not further growth as planned, the risk can become too much for the company to bear. In these situations, all the firm can do is delever by paying off debt. ...Any sign of deleverage shown by a company is a red flag to investors who require growth in their companies.
"In the Western world, including Japan, the problem we have is one of too much debt and that debt now will have to be somewhere, somehow repaid or it will slow down economic growth," Faber said. "I think we lived beyond our means from 1980 to 2007, and now it's payback period."
He went on to say that stimulus funding provided by central banks was useless and that allowing markets to implode was about the only real way to restructure the financial system.
"I think the whole global financial system will have to be reset and it won't be reset by central bankers but by imploding markets - either the currency markets, debt market or stock markets," he said. "It will happen - it will happen one day and then we'll be lucky if we still have 50 percent of the asset values that we have today."
As always, prepare.
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