Faber Says S&P 500 May Drop 20% on Economic, Earnings Prospects

The Standard & Poor’s 500 Index may retreat 20 percent from a 15-month high because stocks are expensive given prospects for economic and profit growth, Marc Faber said.

The benchmark index for U.S. stocks, which closed at 1,150.23 on Jan. 19, may fall to 920, said Faber, 63, who recommended buying stocks in March, before the biggest rally since the Great Depression. The index surged 70 percent from a 12-year low in March before dropping 5.1 percent to 1,092.17 through yesterday. The S&P 500’s price-earnings ratio had jumped to 25, the highest since 2002, data compiled by Bloomberg show.

….read the other 12 paragraphs HERE.

Premature Ejection

While I still wouldn’t count out the “Don’t Worry, Be Happy” crowd on getting the DJIA to a new recovery high, the constant questioning from readers and investors about my stance regarding the U.S. Stock Market requires this hopefully fully-clear comment.

Just two days after the all-time high on the DJIA, I issued my most bearish commentary ever. I said not only to sell all stocks except those related to precious metals, but to short the stock market. I remained a growling bear until just one day from the bottom last March when I announced I was leaving the bear camp. As the rally took hold, my target became 10,500 – 11,000 on the DJIA. Many of my former bear friends remained entrenched in their positions and ended up being mauled by the greatest bear market rally in modern times.

Apparently my sense of humor is misunderstood (and based on some emails, very much disliked) when I intertwine it into my market forecasts. It seems “my bear suit is pressed and bags are packed” wasn’t “strong” enough for some to appreciate I was no longer in the bullish camp towards general equities.

There’s a serious mistake both individual investors and professionals make in that they feel a need to catch every up and down move in a stock, stocks, market or markets. A sense of having to be either bullish or bearish at all times or “miss” something leads many into losses that otherwise would not occur, IMHO.

I think my advice is clear to many but to those who somehow haven’t been able to derive in their mind a clear picture, let me try again so no one (except those who seemingly enjoy misinterpreting) is confused.

U.S. Stock Market – As noted earlier, even though the “Happy” people can get beyond this current correction/consolidation and still make a run to 11,000+ on the DJIA, yours truly is no longer a bull on U.S. equities in general. There’s some serious technical damage (see this great article).

It’s also critical to understand that I’m also not looking for a market crash or anything close to it. That’s why I’m not shorting it as I did in late 2007. Instead, I believe our market and economy is going to look similar to that of the Japanese since 1989. I’ve written and spoken about this several times. Within their 20-year-bear-market were several 50%+ bear market rallies. Such has been the case for us since last March and such is the case I envision for years to come. But over the long run I don’t see major general equity gains year after year for years to come.

America is no longer the engine that pulls the economy worldwide. I continue to believe other areas of the world and markets can greatly outperform ours and equity investors need to be greatly over-weighted in non-U.S. companies. The exception to this is those related to metals which I will discuss shortly. As hard as it appears for some, simply avoiding the U.S. stock market for the most part is my choice.

…..be sure to check out Peter’s website regularly HERE

On Major Moves, Grandich has been very right and not only saved many investors fortunes, but expanded them dramatically. On November 3, 2007 at the MoneyTalks Survival Conference, Peter Grandich of the Grandich Letter warned that “an unprecedented economic tsunami will hit American beginning in 2008”.   Peter advised publicly to short the US market two days from the top in October, 2007 and stayed short until the last week of October, 2008. He began to buy stocks in March 7th,  2009. He also bought oil and oil related investments near the lows after the dive from $147.
….go to visit Peter’s Website.

Excerpt from Chuck Butler’s Daily Pfennig

FOMC Day!

I do believe that market participants and traders have gone into “lock-down” mode, until they see the color of two things today… 1. The FOMC statement this afternoon, and 2. the President’s State of the Union address tonight. I’ve got plenty of thoughts about that, but I’ll keep them to myself. I have really tried to avoid the State of the Union addresses in recent years. In fact, I don’t believe that I’ve really sat down an watched/ listened to one since Ronald Reagan was president!

So… Since there’s not much we can do about the markets’ “lock-down” I’ll just go into the collection of thoughts today…

First up is yours truly… Yesterday, I told you about the President’s proposal for a “spending freeze”… Well, after I hit “send” I thought about this more, and came to conclusion that this isn’t really “spending freeze”… It’s more like a “cooling off”… But, if the President is really serious about “cooling off” spending, he’ll stop the proposed debt ceiling increase in its tracks… You know, the one I told you about that will increase the debt ceiling by $1.9 Trillion!

And… Don’t even try to spin this as a “positive” which I’m sure will be done, for it’s not a spending cut… It’s not even, oh forget about it, the “spin” will be all the rage in the dumbed down media…

OK… Now, that was one thought… Here’s the second by me… People tend to get short-term and long-term and put them under the same umbrella.

It is a proven fact that short-term currency forecasts are wildly incorrect and can not be made with assurance that they will be correct.

Long-term forecasts, are based on fundamentals… And short-term is simply noise…

Fundamentals move markets… Charts do not. Charts simply become the “excuse” or the reason why the fundamental exists!

So, speaking from a fundamental basis… The U.S. Deficits will have to be dealt with at some time in the future… The only way to deal with this is a choice of 3 things…
The Gov’t can
1. reduce spending…
2. raise income (taxes)
3. allow a general debasement of the currency

The reason #3 works is simple… If you allow a $20 bill to be worth just $5, your debt is easier to pay down, and you have more dollars to do it with…

So, for anyone on earth to not realize that this is our future, then they are dreaming… 

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Subscribe to the FREE Daily Pfennig HERE