Faber sees 'colossal mess' brewing in West

The Swiss investor expects expanding debt burdens and never-ending deficits in Western nations in the next 5 to 10 years. He also says the S&P 500 could see a 20% drop.

By MSNMoney partner Oct 22, 2012 9:56AM

CNBC logoBy Antonia van de Velde

 

The debt burden in the U.S. and other Western countries will continue to increase, Marc Faber, author of the "Gloom, Boom and Doom" report told CNBC on Monday, leading to a "colossal mess" within the next five to 10 years.

 

"I think the regimes will try to keep the system alive as it is for as long as possible, which means there's no "fiscal cliff," there's a fiscal grand canyon," Faber told CNBC's "Squawk Box."


Faber argued that the political systems in place in the West would allow the debt burden to continue to expand. Under such a scenario of never-ending deficits, the Western world would rack up huge deficits.

 

One day, the system would break, he said.

 

"Eventually, you have either huge changes occurring in a peaceful fashion through reforms, or, usually, through revolutions," he said. The U.S. is getting closer to such a revolution, he said, as is Europe.

 

"I think the time frame would be within five to 10 years you have a colossal mess … everywhere in the Western world," Faber said. "I think the deficit here (in the U.S.) — irrespective of who is in the White House — will stay above a trillion dollars per annum for at least as far as the eye can see."

 

Bureaucracies in the U.S., as well as Europe, are far too big, he said, and are a burden on the economy.

 

"My medicine for the U.S. is: Reduce government by minimum 50 percent," he said. "The impact would be immediately an improvement in the economy."

 

Faber believes the Chinese and Japanese stock markets could see a rebound, while in the U.S. the S&P 500 is likely to see a 20 percent downward move.

 

"I think here we're going to go down 20 percent from the recent top at 1,470. The technical position of the market is poor and the corporate earnings are worsening. . . . I think there's hardly any growth," Faber said.

 

Four months ago, Faber turned his attention to European stock markets, attracted by the low valuations.

 

"Greece, Italy, Spain, France, Portugal, they were four months ago at the 2009 lows or even lower," he said.

 

Faber recommended buying European stocks at the time and for the first time in his life bought them himself.

 

"I did it simply because the valuations were low. Since then, Greece is up 65%," he said.

 

He would no longer buy European stocks, he said. "I expect a correction but no new lows," Faber said.

 

Now he is focusing on Asia.

 

"In Asia, Thailand from the 2009 lows is up 250%. Other markets like the Philippines, Indonesia, Malaysia, Singapore, are up by a similar amount," he said. The Chinese benchmark index on the other hand was at 6,000 in 2007, now it is at 2,000.

 

"I think China and Japan could have a rebound here. If Greece could rebound by 65% the greatest garbage could rebound by 65%," Faber said.

 

© 2012 CNBC.com


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395Comments
Oct 22, 2012 10:58AM
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So we have to hear it from a Swiss guy? There are MILLIONS here who have been saying that for YEARS.
Oct 22, 2012 12:28PM
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history has proven that change mostly comes from the end of a gun and we have the most guns of any country. when you have the percentage of people with nothing left to lose get high enough the lead will start flying.  that will most likely be when this economy that relies on consumer spending and consumption falls flat because the consumers no longer have the monies to consume.
class warfare is already here whether you recognize it or not.
Oct 22, 2012 12:27PM
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Does anyone really believe that a Republican administration will shrink the government??  Ronald Reagan didn't shrink the government. Neither did GW Bush.  Romney won't either. There are a lot of powerful people and institutions that like big government. They profit from it and will do all they can in order to maintain it. Faber may be correct...revolution is inevitable. 
Oct 22, 2012 1:19PM
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Given our national debt and unwillingness to tackle the tough decisions politically, a dramatic financial downturn in the not to distant future for the West seems a no brainer.
Oct 22, 2012 11:27AM
Oct 22, 2012 11:43AM
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I've been advocating for my clients to deleverage  themselves as much as they can for a few years now- but thanks Marc Faber for backing that up for us.

 

But revolution ? Our 2nd amendment, and those who embrace it,  will keep those who want to throw it all away in check. I don't think Europe has anything close to this great right we have in America.

Oct 22, 2012 11:31AM
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The way Obama has been operating the government since he took office it seems like his (not so) hidden agenda is to create a crisis so severe that it will call for extreme measures like a wholesale move toward Socialism. 

Oct 22, 2012 12:48PM
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America will soon be the new Greece, sooner than we think.  Buy up those gun & amo.
Oct 22, 2012 1:08PM
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As far as guns and ammo, you may be on to something.  I have NEVER seen so many people buying guns and ammo.  Sales must be through the roof.  The average person must be expecting trouble.  

I hope you liberal/socialist types are trained and prepared.  You will need it.  Oh wait ObamaZombies don't believe in guns...   Tap... Tap...
Oct 22, 2012 11:57AM
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old man 76: "The whole world is more or less on a down hill slide. Money, power and greed are the top priorities of people. If you expect to have some one make a world where life is easy then your are ready to be committed. People are just going to live with less. Fewer cars,electronics, smaller homes, fewer toys and such."


It's the cycle of wealth that flows towards the elites, until there is social unrest and then it flows back to the masses for a while, either by revolution or political realignments and wealth redistribution.  This cycle is nothing new in history.

Oct 22, 2012 12:48PM
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We used to be    "One Nation, Under God"

Now we're          "One World, Under NATO"

It doesn't get much simpler than that.
Oct 22, 2012 1:30PM
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. . the government is losing its CREDIBILITY......not addressing the needs of the peope

 Banks that are too big to fail ??

Wall Street's Diveratives ??

Foreclosures.....

......Foreign Aid for nothing.

..Free Trade agreements costing JOBS....

Why will be fund Afghanistan till 2024 ???

..PEOPLE CAN NO LONGER BELIEVE WHAT OUR GOVERNMENT SAYS

Oct 22, 2012 11:44AM
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It's funny.  They think a 50% drop in the size of government is all good medicine, yet they don't think that China with over 50% of their GDP in government is nothing to worry about.  Nice logic.
Oct 22, 2012 10:27AM
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Smart Money has left the house=Black Monday=TAKE YOUR MONEY AND RUN  !!
Oct 22, 2012 1:16PM
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With debt to GDP over 110% what else would one expect??? And we continue to spend, borrow and waste money.........Stupid is as stupid does...and Obama is stupid in regard to leading this country, time for a new leader! 
Oct 22, 2012 10:22AM
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I feel like I should be listening to Black Sabbaths Electric Funeral while I'm reading this LOL.
Oct 22, 2012 2:14PM
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Just how obvious does this need to be.  Spending considerably more than is taken in, over time, will always lead to disaster.  The scary part is how consistently true this is from one individual, to a family, small business, big business, government, whole nations, etc.  It's just simple math.
Oct 22, 2012 11:39AM
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A 20% drop in the S&P defines a bear market...like that will never happen?  What a genius.
Oct 22, 2012 1:14PM
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LETTER TO THE RULING CLASS:

 

You control our world. You’ve poisoned the air we breathe, contaminated the water we drink, and copyrighted the food we eat. We fight in your wars, die for your causes, and sacrifice our freedoms to protect you. You’ve liquidated our savings, destroyed our middle class, and used our tax dollars to bailout your unending greed. We are slaves to your corporations, zombies to your airwaves, servants to your decadence. You’ve stolen our elections, assassinated our leaders, and abolished our basic rights as human beings. You own our property, shipped away our jobs, and shredded our unions. You’ve profited off of disaster, destabilized our currencies, and raised our cost of living. You’ve monopolized our freedom, stripped away our education, and have almost extinguished our flame. We are hit… we are bleeding… but we ain’t got time to bleed. We will bring the giants to their knees and you will witness our revolution!

Sincerely,

The middle class that built this country

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