Barton Biggs Says Nasdaq, S&P 500 May Fall to 1,000
May 30, 2001 - 12:50:31 HKT
Quamnet News Service
Barton Biggs, global strategist at Morgan Stanley Dean Witter, identified three most likely scenarios for the intermediate term, and in contrary to market consensus, he believes there is likely more ice in the U.S. economy.
In a note to clients dated today, Biggs said the probability of more ice reaches 60 percent. "Current strength is a head-fake. The Fed can't cure excess capacity or a bloated consumer. This is not a normal cycle. Inflation is headed down toward 1 percent, with a severe profits recession. Final lows for Nasdaq and S&P 500 are around 1,000. Buy bonds and defensive growth stocks," he said.
The current market consensus now is a more a rosy scenario, where the Fed easing works; the consumer never collapses; the economy has a V-shaped recovery beginning in the fourth quarter; and the bear market bottom was in March. However, the probability that this will come true is only 20 percent, Biggs believes.
The third scenario, which he also believes the probability is around 20 percent, is a so-called "S" world, or "stagflation." Under that scenario, "Greenspan is terrified. Fed will keep cutting. Money supply is soaring, but the massive dose of liquidity -- while it will ease the pain -- won't revive the economy but will cause inflation and higher interest rates. Bonds do badly, but commodity sectors prosper, as does gold," he said.
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