Bank guarantees causing stock market crash

INTERNATIONAL. Speaking on CNBC, Marc Faber the Swiss fund manager and Gloom Boom & Doom editor and publisher said the stock selloffs in world markets may be partially caused by the fact that many governments increased guarantees for bank deposits, making them a much safer investment.

"Now that deposits are guaranteed, basically I as an investor have no incentive to hold equities so I sell them and put my money in bank deposits," Faber told "Squawk Box Europe", on Monday.

The other measures taken by various governments to try and prop up ailing markets have had the opposite effect, he added.

"The interventions, they actually have increased volatility. It’s impossible to forecast market movements when you have interventions," Faber said.

"If the global economy slows down by as much as I think it will… then a lot of book values will have to be adjusted downward quite substantially," he said.

Chris Whalen from Institutional Risk Analytics makes a similar point in his latest newsletter saying that stock prices no longer represent value and the price confusion is making things worse.

"Price no longer represents value and there’s no reason to trust prices on the stock markets until the 80/20 rule is back in force, where 80% of stocks represent 20% of market volatility", says Whalen.

“The disruption caused by the ground rules shift is visible in all aspects of business and finance,” Whalen writes.

Faber's conclusion? "I think first we’ll have a bout of deflation that will actually be quite substantial… but then the budget deficits will go through the roof and the Fed will print even more money … and then later on we'll have very high inflation."