Faber Says U.S. $700 Billion Rescue Plan Isn't Enough

By Hanny Wan

Sept. 25 (Bloomberg) -- The U.S. government's $700 billion bank rescue plan won't be enough to revive the finance industry, said investor Marc Faber, who forecast the so-called Black Monday crash in 1987.

The government should buy out struggling home owners, Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, told reporters on the sidelines of an investor conference in Hong Kong. He's also predicting Chinese economic growth to ``disappoint'' and Indian stocks to decline.

``The U.S. has many problems,'' Faber said. ``It's a period of hardly any growth in real terms in the economy for several years.''

The global credit crisis, triggered by a housing slump in the U.S., has saddled financial companies with more than $520 billion in writedowns and losses, collapsing Bear Stearns Cos. and Lehman Brothers Holdings Inc. in the process.

House Financial Services Committee Chairman Barney Frank told reporters in Washington that House and Senate Democrats have reached a deal on legislation to implement the U.S. Treasury's plan, which will allow it to buy as much as $700 billion in devalued assets to unfreeze credit markets.

``I don't believe this is going to be solved in six months to a year,'' Faber said.

Faber also forecast the Standard & Poor's 500 Index will rally to as high as 1,350 points following the approval of the bailout plan because stocks are ``oversold.'' That level is about 14 percent higher than the gauge's close yesterday.

`Earnings Bubble'

Still, ``I'm not playing that rally,'' he said. ``I'd rather think that stocks are not particularly cheap. We don't have a valuation bubble. We have an earnings bubble. In 2009, earnings will disappoint.''

Faber said he is ``negative'' on China's economic growth, which has slowed for four straight quarters. The economy expanded at 10.1 percent in the second quarter, down from the previous period's 10.6 percent, though still the fastest pace of the world's 20 biggest economies.

Industrial production grew in July at the weakest pace since February 2007 and manufacturing contracted in August for a second month, according to an official survey, underscoring government concern that an economic slump is possible.

``Economies like China that grow very rapidly can have significant adjustments,'' Faber said. ``I'm not negative for the long term. It's just that from a cyclical point of view the Chinese economy could turn out to be weaker than what analysts are telling you.''

India is also ``not problem-free,'' Faber said. He forecasts the Bombay Stock Exchange's Sensitive Index, or Sensex, will fall below 10,000. The Sensex is down 33 percent this year.

``I think new all-time highs in markets are most unlikely for the time being,'' Faber said. ``So I'm not particularly interested to play the market at the present time.''

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net