Marc Faber on Bloomberg: U.S. Government Bonds…Last Shoe to Drop

By on October 13, 2008

Today Marc Faber said, “the next shoe to drop is more in the real economy, in corporate profits, in commercial real estate.” Faber went on to say that, “one asset class after another has now gone down except for one, and these are U. S. government bonds, and I think that’s the last shoe to drop, because with all the credit now being shifted to the government as far as the eye can see; the budget deficit in the U. S. will be in excess of a trillion dollars and that will cause some funding problems, in my opinion.”

Faber said a global economic slump is unavoidable which could result in deflation in some sectors (financial assets) and inflation in others. He indicated a moderate rally in equities until March 2009 could set up a false sense of security. He said that in the next 5-10 years U. S. government bond yields could eventually increase by two to three times what they yield presently. In spite of this, Faber’s current allocation is 20% equities, 10% gold and 70% U. S. treasuries.

Faber stated the market was possibly in the most oversold condition ever at the end of last week. He indicated a bounce was inevitable, to where the market may trade between 1,000 and 1,200 on the S&P 500, but the market would likely drift lower as the economy continues to deteriorate badly.

Faber said he would continue to play it safe as it is only a matter of time before the U. S. government goes bankrupt.
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