Faber expects a bounce

The sheer amount of money governments are pumping into the financial system will eventually lead to a very strong rally in beaten-down assets, investor Marc Faber said on CNBC Friday.

But Faber also warned that if the markets remain depressed as liquidity increases the result could be a depression worse than in 1929.

By and large asset markets are "terribly oversold" now, while investors are going overboard into the U.S. dollar and U.S. Treasurys, Faber, editor of the Gloom, Boom & Doom Report, told "Squawk Box Europe."

"What you could see in the next three months is a very strong rebound in asset markets, in equities, followed by a selloff in bonds and eventually a selloff in the dollar," he said.

Governments and central banks around the world are providing liquidity and that will eventually have an impact, Faber said.

And once the buying starts the rally is likely to be "stronger than people expect" given that financial institutions are sitting on so much cash, he added.

Whichever way you look at it, there is a very strong possibility of mother of all bounces. In the greatest bear market of 1929 to 1933, that rebound was 40% plus. Ultimately it failed but a rebound like that should be considered a possibility.