Tags: Kirby | Daley | Stocks | Plunge

Strategist Daley: Stocks May Plunge 40 Percent

By Dan Weil   |   Monday, 26 Apr 2010 09:41 AM

Stocks may soon suffer a plunge, because the economic rebound stems from massive government stimulus that is unsustainable, says Kirby Daley, strategist at Newedge Group.

"Right now we're enjoying the confluence of the implementation of massive stimulus, massive monetary stimulus as well as fiscal, around the world," he says.

"I don't believe we have 30 percent upside from here, I certainly believe we are at risk of 30 to 40 percent downside."

Many investors are enthusiastic over the global rebound from recession, including a 5.6 percent expansion in the United States during the fourth quarter.

Daley isn’t.

"Every economic statistic that we're seeing now in the world has been bought," he told CNBC.

"The difference is this time we're buying them largely on credit, and that credit has to be paid back. It's not leading to a self-sustaining cycle of recovery, which is key."

The world is benefiting from mammoth monetary and fiscal stimulus, Daley points out.

"We're enjoying it right now. But when we have to pay the piper . . . as the debt problems continue to come out, that will weigh on growth, that will weigh on earnings, and markets will adjust."

Many experts question whether stocks will keep rising.

“Investors want . . . to achieve certainty (on earnings), so they know the money they put in now isn’t going to come back to bite them in a few months,” Jake Dollarhide of Longbow Asset Management, told The New York Times.

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