Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Lee Lichterman III who wrote (9783)	4/4/1999 3:13:00 PM
From: Jeff Jordan	Respond to of 99985

L3, looks like a lot of ivestors are sharing your sentiments. I knew I wasn't alone. FRANKFURT, Germany (Reuters) - A former Federal Reserve governor was quoted Sunday as predicting a fall in U.S. share prices and saying a Dow Jones index of 6,000 to 7,000 points would be a realistic level. Lawrence Lindsey told German newspaper Euro am Sonntag that corporate earnings could not possibly continue to outpace gross domestic product growth as they had done throughout the 1990s. "I expect a slowdown in earnings this year. That means that share prices will fall," said Lindsey, now with the conservative American Enterprise Institute. Lindsey predicted medium-term and long-term interest rates would increase as a result of "enormous" global demand for capital which was needed for refinancing and recapitalization rather than investment. Asked what consequences the interest rate increases would have, Lindsay said: "That depends of course on how rapidly and how low share prices fall. But I am convinced that the consequences will be all the more harmless the sooner the bubble bursts. I think a Dow of 6,000 to 7,000 points represents a realistic level." The Dow Jones industrial average ended above 10,000 for the first time ever last Monday as Wall Street shrugged off tensions in Yugoslavia and focused on upbeat corporate stories. Lindsey said that if the Dow fell by 3,000 or 4,000 points the paper assets of U.S. households would shrink by about 4 trillion dollars and consumption would weaken commensurately. "I expect this would reduce economic growth by about two percentage points." Given that the dollar would depreciate in response, a decline in key interest rates would be unlikely, Lindsey said, adding that he could instead imagine fiscal policy becoming more accommodative. Lindsey also said he was "quite depressed" about Europe's prospects as it had not yet comprehensively reformed its welfare system or liberalized its markets. "They should cut taxes, free labor markets of restrictions, curb the power of the unions. There are no really free markets in Europe and the cake is being dividend up among a few," Lindsey said. He also said the euro area states would transform the new single currency into a "political currency." "That will weaken the independence of the European Central Bank. It will defend itself of course. But in the end politics will win as it always does. "I fear the European Central Bank is not yet strong enough to be able to withstand politicians' attacks." Lindsey said it would still take at least a year before it became clear whether the euro will be a hard or soft currency. Asked if he could be a candidate to succeed Alan Greenspan as Federal Reserve chairman if Texas Gov. George W. Bush wins the U.S. presidency next year, Lindsey said: "If that happens I would recommend that the president keeps Greenspan."