Upbeat consensus worries Faber

PUBLISHED : Sunday, 07 March, 2004, 12:00am
UPDATED : Sunday, 07 March, 2004, 12:00am

Investment adviser Marc Faber says optimism on the global economic outlook has reached excessive levels, leaving him worried a possible shakeout could be around the corner.

Citing from a recent poll by the Yale School of Management, he says more than 90 per cent of all US financial institutions believe the Wall Street rally will continue over the next 12 months, while 95 per cent of US individuals polled are similarly bullish.

'Always sceptical of the consensus, I am afraid that the equity markets may be forming a more significant top between now and April, which may not be exceeded for some time,' he says.

Aside from investor over-optimism, Mr Faber, who manages more than US$150 million and publishes the monthly Gloom Boom & Doom newsletter, says the wall of upbeat economic news is also a bad sign. The true economic picture may be a lot worse than US press reports reveal.

'Employment gains are minimal and real incomes are declining as prices are rising far more than what the government's statisticians are publishing,' he says.

Inflation, currently regarded as almost non-existent by economists, may in fact be at runaway levels, Mr Faber says. For evidence he points to a study by the Vancouver Sun which reveals prices for a basket of goods and services increased roughly 35 per cent in the Canadian city between 2002 and 2003. Transpose that consumer price data to American cities south of the border, and the inflationary outlook appears anything but benign.

He adds the red-hot US housing market is akin to the asset inflation bubbles experienced in Japan in the late 1980s or Hong Kong pre-1997. Mainland growth could also disappoint this year, he says.