Faber believes that equities may continue to rally from the current oversold levels. "The euro-dollar may have seen a bottom at least for the near-term," he said.
Below is an edited transcript of Faber's interview on CNBC-TV18.
Q: The world markets have been swinging wildly between risk-on and risk-off. What do you think is going to be the more dominant theme in the near-term?
A: In the near-term, I believe that markets can still rally somewhat for the simple reason that in every market you have a few strong stocks and they are breaking out on the upside. And then you have a lot of stocks that are down 40-50% and very oversold, so they can also rebound. We have a lot of liquidity in the world that has been created essentially by central bankers.
We have negative real interest rates practically everywhere. So if people keep their money on deposits, they are losing out in terms of purchasing power. The sentiment among investors, at the beginning of June, was very negative when the S&P bottomed out. So I think that we may still rally somewhat into August -- mid-August, end of August and then probably will have a tougher second half. In other words, September-October-November could be somewhat tougher months.
Q: So if you were to just put numbers to this, the S&P closed on Friday at 1390. How much would you give it in the case of an up move?
A: The high was this year on April 4 at 1422. I think it's possible, based on the few stocks that are strong and the rebound candidates, we will exceed that high. That maybe we move to 1450 or even 1500. But the difficulty at the present time is you have ousted expansionary monetary policies, zero interest rates in real terms and you have a slowdown in the global economy.
At the present time in Asia, we have practically no growth. In Europe, we are in recession. In the US, there is very little growth. So you are, on the one hand, faced with a lot of incoming liquidity created by central banks and on the second hand you have essentially a global economy that is slowing down where corporate profits will rather disappoint than exceed expectations.
Q: Would you be a seller in the strength over the next few weeks and do you see the levels of the June lows that you alluded to being broken in the September to November phase?
A: Yes, I think these lows could be exceeded and that it maybe October-November or after the US election we could have essentially a decline of around 20% in the market.