Faber predicted at the beginning of March a 20 percent decrease if the index reached a new high. The S&P 500 has tumbled 11 percent since reaching 1,217.28 on April 23, the strongest level since the days after the September 2008 bankruptcy of Lehman Brothers Holdings Inc. Faber advised investors to buy U.S. stocks on March 9, 2009, when the index reached its lowest level since 1996.

“The market became very overbought in mid-April,” Faber said in a Bloomberg Radio interview today with Tom Keene. “The S&P could still decline by another 10 percent, maybe 15 percent.”

The S&P 500 dropped 4.2 percent last week as Europe’s sovereign-debt turmoil spread. The crisis has served as a “reminder” that Western nations have liabilities too big for their economies, according to Faber.

“Either taxes will have to go up, or expenditures will have to go down, or a combination thereof, which then will not be particularly favorable for economic growth,” Faber said.

[REad More at Bloomberg Businessweek >>]

“The next war will be a dirty war,” he told fund managers: “What are you going to do when your mobile phone gets shut down or the internet stops working or the city water supplies get poisoned?”

Dr Faber did offer a few more traditional investment tips, although their theme fitted his general mode of pessimism.

In Asia, particularly, he said, stock pickers should play on future food and water shortages by buying into companies with exposure to agriculture and water treatment technologies.

One of Dr Faber’s darker scenarios involves growing military tension between China and the United States over access to limited oil resources.

Today the US has a considerable advantage over China because it has free access to oceans on both coasts, and has potential energy suppliers to the north and south in Canada and Mexico.

It also commands an 11-strong fleet of aircraft carriers that could, if necessary, secure supply routes in a conflict situation.

China and emerging Asia, meanwhile, face the uncertainty of supplies that must travel from the Middle East through winding sea lanes and the Malacca bottleneck.

American military presence in Central Asia, Dr Faber said, may add to the level of concern in Beijing.

“When I tell people to prepare themselves for a dirty war, they ask me: “America against whom?” I tell them that for sure they will find someone.”

At the heart of Dr Faber’s argument is a fundamentally gloomy view on the US economy and its capacity to service a growing mountain of debt.

His belief, fund managers were told, is that the US is going to go bankrupt.

Under President Obama, he said, the country’s annual fiscal deficit will not drop below $1 trillion and could rise beyond that figure.

Arch bears have predicted that US debt repayments could hit 35 per cent of tax revenues within ten years.

Dr Faber believes that the ratio could easily hit 50 per cent in the same time frame.

[The Times >>]

Leading investment pundits have been coming out with their predictions on whether China is sitting in a bubble economy or not. Short-sell veteran Jim Chanos recently said that China is another Dubai, sitting in a precarious excess credit circle. Since excessive credit in China is ballooning, it might burst soon, Chanos predicted.

Many investors have panicked ever since Chanos’ forecast that China will crash under unbridled growth without economic fundamentals. A crash in China would mean that commodities markets—the main driver of the Chinese economy—will collapse.

Global commodities investment guru Jim Rogers, who has been a passionate investor in the Chinese market, has hit back saying Chanos does not know the fundamentals of the economy in China. Rogers further blasted Chanos saying people like him who did not know to pronounce the word China some years back are now experts on the Chinese economy.

While Rogers and Chanos are warring on China, let us look at what is another celebrated commentator—Marc Faber—has to say on the China bubble. Faber, publisher of the Gloom, Bloom, Doom report almost agrees with Chanos on the China bubble forecast, not with Jim Rogers.

Faber agrees with Chanos that China is caught in several serious economic problems. He says: “There is excessive credit in China, but the oversupply of money has been used to build the infrastructure, education, and R&D, rather than consumed. And that is the difference between China and US.”

Faber is concerned about the bubble burst syndrome in China. But unlike Chanos, Faber does not see the Chinese bubble bursting so soon. “The China bubble will not burst soon. I don’t see it imminent.”

“It is very difficult to pinpoint a day when China will implode, I don’t think it will happen right way,” Faber added.

China has, indeed, been the fastest growing economy in the 2000-2009 period. There has been a boom in commodities production and consumption in China. China has overtaken several countries including India, US, Australia and South Africa in the consumption and production of several commodities including base metals and bullion.

There has been a flood of bank lending in China that has been boosting the Chinese appetite for manufacturing, gold mining, agriculture, farming etc. But is it all over?

Let us wait and watch who will be right in the Chinese bubble forecast: Jim Rogers, Jim Chanos or Marc Faber.

To hear more of the predictions view this interview

�We are living through major changes in the world,� said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and �I don�t think this will be reversed,� he said today at an AsianInvestor magazine forum in Seoul.

The MSCI Emerging Markets Index has jumped 35 percent since the end of March, headed for a record quarter after inflows from investors surged and stimulus plans from China to Brazil bolstered confidence. That compares with a 21 percent increase in the developed-market MSCI World Index.

�I agree that emerging markets� fundamentals are improving, as some leading indicators show,� said Christian Jin, a global- equity fund manager at HI Asset Management Co. in Seoul, which oversees the equivalent of $7.6 billion in assets. �The developed nations are still saddled with the problems in their financial sectors and housing markets caused by subprime.�

No developed markets rank among this year�s 10 best performers out of 89 global indexes, according to data compiled by Bloomberg. Peru and China have led gains.

Still, emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said on June 25. Funds in Latin America and Asia excluding Japan showed the biggest outflows, according to the U.S.-based research company.

U.S. �Not Particularly Cheap�

Among regions, investors should buy shares of Asian nations including Japan on any declines, while U.S. stocks are �not particularly cheap� in real terms, Faber said.

Global economic growth is unlikely to recover to the levels before the U.S. mortgage-market slump, Faber said.

The World Bank said June 22 the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said.

�This unusual condition of all asset prices going up at the same time, or all economies booming, will not be coming back anytime soon,� Faber said.

He also recommended investments related to commodities, such as farmland, or the tourism industry.

Faber told investors to abandon U.S. stocks a week before 1987�s so-called Black Monday crash. He advised buying gold at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal recently climbed above $940 in Singapore trading.

Source: Bloomberg

It looks like Marc Faber still favors investors buying farms, but this time around he indicates the rational of it is linked more to restlessness of a bad market leading to wars.

1. Financial Industry will continue to suffer job cuts and it will shrink.
2. We should get a counter trend rally from this latest drop
3. Shorting Treasury is favored as treasury is at the end of a 27 year bull market.
4. Investors should buy farm land.

�I�m a little bit careful about the outlook for gold for the rest of the year,� he said. �A countertrend rally could occur soon where stocks would suddenly rise quite substantially.�

The best bet for investors may be to buy a farm and escape from the cities, as a prolonged recession could lead to war, as the Great Depression did, said the Swiss national, who now lives in Thailand.

�Buy a farm and let your girlfriend work on the farm,� he said, to the applause of investors. �If the global economy doesn�t recover, usually people go to war.�

[Read the test at bloomberg here >>]