Diversifying for a 40% Market Crash

Marc Faber, editor of the “Gloom, Doom & Boom Report,” has advised investors that now is a good time to invest in gold  because stocks will crash over 40% and the world is on the verge of a new liquidity and debt crisis.

Faber says investors would be prudent to diversify into safe haven in gold bullion which has risen 3% this year and is currently at $1,096 an ounce.

He recently told MarketWatch that the stock-market downturn could result in stocks hitting lows not seen in five years.

Faber warns that the S&P 500, which fell to 1,881 yesterday, could drop to its 2011 low below 1,200.

“According to FactSet data, that would be 1,099.23, set that October. Faber referred to that outcome, a more-than-40% plunge in the broad stock-market benchmark, as his ‘medium bearish’ scenario. His most bearish prognostication envisages the S&P 500 falling back to its 2009 nadir, which FactSet data put at 676.53,” MarketWatch reported.

“The main factor is diminishing global liquidity because of the decline in oil prices.”  A rapid appreciation of the U.S. dollar may send Brent oil as low as $20 a barrel, according to Morgan Stanley and other analysts.

Crude oil (WTI) fell sharply to below $28 a barrel today on deepening concerns about oversupply, fragile demand from China and the slowing global economy.

Faber has correctly warned that the price of crude oil indicates a shrinking global economy. “When oil prices increase, it basically is a consequence of expanding [global] liquidity,” Faber said, so inversely, this unrelenting fall suggests contraction.

Faber cautioned that the situation could change because of global central bank tactics. “It is impossible to make predictions because we don’t know the extent of the madness of central bankers,” he said. He has been a harsh critic of the quantitative easing measures of the Federal Reserve and other global central banks.

He has warned that their zero percent interest policies have resulted in the world becoming vastly more indebted and therefore more vulnerable to a new and worse global debt crisis.

Faber favours allocated and segregated coin and bar storage in Singapore.

Reprinted with permission from GoldCore.

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