Will We See a U.S. Economic Collapse in 2016?
Known for his doom and gloom commentary, investor-turned-analyst Marc Faber is predicting that the U.S. stock market will be heading for a fall in 2016. According to Faber, a recession is already upon us and the signs will, sooner or later, become more obvious.
Speaking with Bloomberg, Faber said that the median price-to-earning (P/E) ratio for U.S. stocks is relatively high, an indication that the market is inflated and the stock market bubble could burst at any time, sparking an economic collapse. (Happy New Year, huh?)
Now, Faber may have been wrong on some of his past predictions, but the current economic conditions largely agree with his forecast for the U.S. economy in 2016.
Take, for instance, this year’s global corporate default rate. More companies from the U.S. have defaulted on debt this year than companies from any other country.
Bloomberg reports that a whopping 60% of this year’s global defaulters have been U.S. companies, with the second biggest defaulters being the emerging markets at only 23% (Source: “U.S. Companies Led the World in 2015 Debt Defaults, S&P Says,” Bloomberg, December 28, 2015.)
Worse yet, the S&P is expecting the defaults to increase as we head into 2016, with the majority of the defaulters emerging from the energy sector. It’s currently facing its worst price slumps in years.
According to Faber, long-term Treasury bonds now look like better investments than U.S. stocks. Nonetheless, investing in the emerging markets makes better sense to him than investing in the U.S. He particularly mentions the Vietnamese stock market as a good alternative to the U.S. for equity investment.
Faber also finds the real estate markets in Portugal, Spain, Italy, and the Indo-China region as lucrative investment opportunities for the long haul. (Source: “Faber Seeing Recession Clashes With Yellen, Likes Treasuries,” Bloomberg, December 28, 2015.)
Faber’s preference for the emerging markets over the developed markets may have to do with the problem of the U.S. debt crisis and rising debt plaguing all big world economies, including China and the eurozone. From East to West, virtually every big economy is now heavily debt-laden.
Take a look at the U.S. federal debt as a percentage of the gross domestic product (GDP), which is hovering close to all-time highs. In fact, according to CNBC, last month, the U.S. debt distress ratio, a measure of risk in U.S. debt, hit its highest level since the Great Recession highs in 2008–2009. (Source: “Debt distress level at highest since recession,” CNBC, December 28, 2015.)
All these signs reiterate Marc Faber’s stance that the much-dreaded U.S. economic collapse may soon be upon us. I have only one piece of advice for my readers: invest wisely!