Tags: Belkin | 30% | stock | drop

Hedge Fund Consultant Belkin: Recession, 30% Stock Drop Coming

Tuesday, 16 Oct 2012 08:31 AM

By Dan Weil

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The U.S. economy is heading into a recession that will push stock prices down 30 percent or more, says hedge fund consultant Michael Belkin.

His forecast model indicates declines ahead in industrial production, retail sales and jobs, Belkin tells WSJ Live. The average recession lasts about 15 months, and that’s what we’re looking at now, he says.

That’s obviously not good for corporate earnings. “We’re on the cusp of an earnings season that’s going to be a big disappointment,” Belkin says. “Corporate earnings declines are what drive recessions.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

The most vulnerable companies are in the technology sector, he says. For tech companies in the Standard & Poor’s 500 Index, more than 50 percent of their revenues come from overseas.

Stocks have fallen in all 22 recessions since 1902, Belkin says, with the Dow Jones Industrial Average dropping by an average of 30.6 percent.

That’s the base case this time around, Belkin says. The Nasdaq Composite Index is more at risk, because it’s heavily-weighted in big technology stocks like Apple, which is overvalued, he says.

To be sure, there’s no consensus on the outlook for stocks. They rose Monday, and corporate profit reports could determine the market’s direction, at least for the next few weeks.

“The big question regarding earnings is whether expectations have come down enough so that companies can beat guidance,” Dan Veru, chief investment officer at Palisade Capital Management, tells Bloomberg.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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