Stay Out of Stocks as Economy Will Only Get Worse

MoneyNews.com
Tuesday, 24 Aug 2010 11:02 AM

By: David Frazier


The supposedly brilliant economists on Wall Street are finally wakening up to the fact that economic growth both here in the United States and in numerous other countries around the world will likely slow considerably during the remainder of the year.

For example, on Aug. 21, JPMorgan’s chief economist reduced his third-quarter 2010 GDP for the United States from 2.5 percent to 1.5 percent, and he cut his fourth-quarter growth forecast from 3.0 percent to 2.0 percent.

A day earlier, JPMorgan cut its 2010 GDP forecast for China to 9.8 percent growth from 10 percent growth because the United States and international economic recoveries appear to be suffering from a "loss of momentum."



ALERT: Frazier: Stocks Rolling Over. Get Out Now.

The firm also reduced its 2011 GDP forecast for China to 8.6 percent from 8.8 percent. (China’s economy expanded 10.3 percent during the second quarter of this year).

Although Goldman Sachs has maintained its second-half 2010 GDP forecast at 1.5 percent, the company recently lowered its 2011 forecast from 2.5 percent to 1.9 percent.

Those announcements follow a report issued last month from the Institute of International Finance (IIF) whereby the IIF stated that it expects global growth to decline to 2.7 percent during 2011 from 3.4 percent this year.

Meanwhile, economists surveyed by Bloomberg recently stated, on average, that their research indicates that the U.S. economy likely grew at a much slower pace during the second quarter of this year than they had initially estimated.

Specifically, those economists said that instead of growing at a 2.4 percent annualized pace during the second quarter, their most-recent research indicates that inflation-adjusted GDP likely grew at only a 1.3 percent annual rate during the quarter ended June 30, 2010.

With the National Association of Realtors reporting this morning that sales of previously-owned homes in the United States declined 27 percent during July, as compared to the same month a year ago, and that inventories of homes (in relation to sales) rose to their highest level on record, I expect Wall Street economists to lower their growth forecasts further within the next few weeks.

I also expect so-called Wall Street securities analysts to soon begin to lower their third-quarter forecasts of corporate profits. That would be a very negative development for stock prices because stocks tend to move in the same direction as corporate profits.

Meanwhile, my research indicates that neither the Federal Reserve nor the U.S. government will be able to stimulate the economy during the months ahead. That’s because the Fed has essentially run out of monetary tools that had been used, historically, to stimulate the economy and because the federal budget deficit is currently at levels that won’t allow the Congress to pass any desired government-spending proposals.



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About the Author: David Frazier


David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.



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