Which asset prices are heading for a correction?

What will happen when the cheap credit that has been driving the US economy comes to an end? Dr Marc Faber gives his predictions, and advice on your investment strategy.

Yesterday's edition (see: Why an inflationary bust is inevitable) is a long-term forecast. Near term, I envision a scenario whereby credit growth slows down and the economy moves into either a very low-growth or recessionary phase.

Why? Since US debt growth has driven asset prices higher in the last few years and allowed US households to extract funds from their assets in order to sustain increasing consumption, it is likely that home and stock prices, which will no longer rise and more likely may go down, will have a pronounced impact on economic growth rates. In this respect, it is important to understand the following. While the Fed fund rate has increased from 1% in June 2004 to 5% at present, lending standards in the housing industry have continued to decline.

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