Michael Belkin Predicts Recession and Stock Market Drop of 40%
At WSJ Live (video below), Michael Belkin, author of the Belkin Report and hedge fund advisor, provided a grim assessment for the economy and stock market. Belkin said technology companies, where international revenues amount to 50% of sales, are most exposed to economic weakness emanating from Europe and China. He predicted a big disappointment in the upcoming earnings season. Belkin made a presentation at the Big Picture Conference (link).
Belkin said weak corporate earnings drive recessions and the economy is currently in recession. He added the National Bureau of Economic Research won’t tell us we were in a recession until it’s over. A real time indicator is needed and the ECRI indicates recession as well as the global PMI, he said.
According to Belkin his own indicators signal recession and he predicts “rough sledding” for the next 14-15 months; the average time a recession lasts. The average stock market decline is 30% in a recession which is what the Dow should drop, he said. Belkin said risks are much higher in the NASDAQ and big cap tech such as Apple, which he considers over owned.
Belkin is advising his clients to have reduced equity exposure, or be flat the market, hedged, and even short stocks that are way up for “no good reason.”
When asked by WSJ’s Sam Mamudi which sectors could hold up better in a decline, Belkin said defensive sectors such as consumer staples, healthcare, utilities, and possibly regional banks should fall less in the bear market he is predicting.
Belkin said investors should wait for the buying opportunity which will arrive late next year.
When asked by Mamudi if he was a perma-bear, Belkin said his model forecasted a big upturn in March and April 2009 and the bottom of October 2002. Belkin pointed out we’ve experienced 50% declines twice since 2000.
Belkin would consider bonds a hiding place, but prefers cash as an alternative to stocks.