The stock market appears to be at a critical inflection point. That’s the takeaway from widely followed economist Marc Faber, author of the Boom, Gloom & Doom newsletter.
Faber’s bearish market calls have been followed closely since 1987 when he warned his clients to cash out before Black Monday.
And in a live interview on CNBC’s Fast Money Halftime Report, Faber again warned that economies of the world may be on the brink of a serious slowdown.
Faber indicated that while investors remain focused on Greece and Europe – other issues, bigger issues are looming. And they’re more threatening.
“As an observer of markets – whenever everyone focuses on one thing – like Greece and Europe – maybe they miss issues that are far more important – such as a meaningful slowdown in India and China.”
The latest reports from Beijing would support Faber’s assertion. The HSBC Flash Purchasing Managers Index, slipped to 48.7 in May from 49.3 in April. That marks the seventh straight month that the index has been below 50, a level which indicates economic activity is contracting.
Faber also cited weakness in the high-end as another key catalyst that’s very negative.
“There are more and more stocks that are breaking down – economic sensitive stocks and companies that cater to the high-end,” he said. “That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”
Concerns over the size of United States debt reared their head once again as ratings agency Standard & Poor’s warned that health care costs for a number of highly-rated Group of 20 countries, including the U.S., could hurt growth prospects and harm their sovereign creditworthiness from the middle of this decade.
S&P downgraded the United States credit rating for the first time ever in August of last year.
“Governments’ fiscal burdens will increase significantly over the coming decade, with the highest deterioration in public finances likely to occur in Europe and other advanced G-20 economies, such as Japan and the U.S.,” S&P said in a statement on Tuesday.
Health care costs for a typical advanced economy will stand at 11.1 percent of gross domestic product by 2050, up from 6.3 percent of GDP in 2010, S&P said.
“Population aging will lead to profound changes in economic growth prospects for countries around the world as governments work to build budgets to face ever greater age-related spending needs,” said Standard & Poor’s credit analyst Marko Mrsnik in the statement.
The August downgrade of the United States rating was an embarrassment to the country, but fears that the move would hurt investors’ confidence in the country proved unfounded.
David Owen, Chief European Economist at Jefferies International believes the U.S. will face another downgrade, but that its impact will again be limited.
Except in our ability to pay the massive amount of interest on the debt we have. But hey, everything will be OK.