Taking Stock: The obscure market

By Malcolm Berko

Dear Mr. Berko:
In early April, I began to get concerned about the market and economy. So, through my broker, I asked analysts at Merrill Lynch, Oppenheimer, Bank of America and JPMorgan if we were headed into a recession and if the market would dip below 8,000 this year. All I got were evasive answers like: “The market is temporarily oversold,” “The market is waiting for second-quarter earning to confirm the recovery” or “We are long term bullish on the market and the economy.” Why won’t they be specific? Will you give me straight answers? Do you have the guts to publish them?
D.R., Oklahoma City

Dear D.R.:
Way back in July 2006, I received a similar question from a reader in Waukegan, Ill. I responded: “As certain as I am that the sun will rise on Sunday there is a 90 percent degree of probability that we will have a recession in the next six months to a year.” And in February of this year, I wrote that the Dow could close 2010 at 9,500.

As readers know, I’m not shy about expressing my opinion! Yes, I’m bearish on the market, semi-bearish on the economy and bullish on some stocks. I’m a world-class worrier. I worry a lot because I don’t trust government statistics. I believe the administration sometimes fudges the numbers to reflect its policies.

I’m also a cynic. And a cynic is defined as a “blackguard who sees things as they really are, not as they ought to be.” I’m also a light sleeper, so I wake up a lot. But at age 72, I don’t need much sleep, and that keeps me from making a lot of mistakes.

I also mull a lot. In fact, my wife calls me a professional muller. Sometimes it takes me 30 seconds to decide which side of my toast to butter first. And when I speak to audiences across the country, I don’t tell them what they want to hear, but rather what they should hear. I’m telling you this because it will help you understand what I’m going to tell you.

I worry about low interest rates and that low rates will create an asset bubble. I worry about what will happen to the economy when interest rates return to their normal 3 percent to 5 percent levels. I worry about what will happen to the stock market when the Fed raises rates, and I worry that when the Fed raises rates that the Dow’s extreme volatility may shock the market to the 8,000 level.

I worry about the commercial real estate market. I worry that small-town community banks are bloodied by vacancies in office buildings, strip malls, apartment complexes, manufacturing centers and the like. I worry that their mortgage problems will scorch their capital base and that these banks are not able to make loans to needy customers.

I worry about the GDP when government stimulus programs are withdrawn and how it will affect new home sales, new auto purchases, new appliance purchases and infrastructure spending. I worry about new federal and state taxes and a possible value-added tax and its inflationary consequences. I worry that politicians will spend this new revenue stream and not use it to reduce budget deficits. And I worry that the light at the end of the tunnel is getting dimmer and dimmer because a corrupt Congress and a greedy corporate America are stealing the flame.

I worry about Greece, Spain, Portugal and the European debt crisis. I worry that it will happen here, and I worry that the only thing we learn from history itself is that we learn nothing from history. And I worry about a second recession in the U.S.

Finally, I worry about the consumer, whose powerful spending has been responsible for 71 percent of our GDP. I worry that he has accumulated so much debt buying homes, cars and stuff that he can’t be the economic growth engine for the future as he was in the past. I worry about what can replace that economic engine.

And I worry that all the above worries presage an 87.5 percent degree of probability that the DOW may close around the 9,500 level this year. And I worry that all the above will be the second leg of a “W” shaped recession/recovery.

And I worry that I might be right.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.