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Frazier: Ignore the 'Experts,' Stocks Poised to Plunge

By Dan Weil   |   Tuesday, 06 Jul 2010 12:38 PM

The weak economy will push U.S. stocks lower — perhaps substantially lower — in the weeks ahead, says David Frazier, editor of the Newsmax newsletter The ETF Strategist.

Aggressive investors can take advantage of this move by purchasing inverse equity ETFs (exchange-traded funds), he told Newsmax.TV Money. These are funds whose share prices rise as stocks fall.

Conservative investors, meanwhile, should shift their holdings to cash, Frazier says.

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“An overwhelming number of economic statistics have been indicating for the past several months a substantial slowdown in U.S. economic growth for the second half of this year,” he said.

GDP growth totaled 2.7 percent in the first quarter.

There has been a generational shift in the public’s attitude away from debt and spending, Frazier says. “Given that consumer spending accounts for about 70 percent of economic output, we probably won’t see any significant improvement in GDP for possibly the next two years.”

Technical indicators also have been pointing downward for stocks since April, Frazier says.

Major financial TV shows are now starting to discuss the economic slowdown. And what does that mean?

“Mutual fund investors will exit in mass from stock funds, which will create substantial selling pressure,” Frazier said.

That view may buck the conventional wisdom, he acknowledges. But, “the overwhelming majority of economists and money managers, if you look at their track records, they’re usually wrong,” Frazier said.

“You shouldn’t listen to these guys.”

In the short term, Frazier sees the Dow Jones Industrial Average falling to around 9,200.

“And if we see this mass exodus from stock mutual funds, we could see the Dow go into the mid-8,500 levels.”

The Dow recently stood at 9,800.

So for investors who can withstand short-term volatility, Frazier recommends selling stocks short and buying inverse equity ETFs.

Those who are most worried about protecting their money should put 100 percent of their financial assets into cash, such as short-term certificates of deposit (CDs) and money-market securities, he says.

Many money managers are urging investors to buy defensive stocks, such as healthcare and consumer staple companies, because their shares go down less than others in a market decline.

Frazier lambastes that rationale.

“Why in the world would I put money in stocks that are going to go down, just because they’re going down less than other stocks?” he said.

“That doesn’t make any sense. Quit listening to these people. They aren’t your friends. I would urge conservative people to put 100 percent of your financial assets in cash-like investments.”

Note from Moneynews:
If you’d like to be kept abreast of actual economic and financial developments and their longer-term effect on securities prices (rather than relying on misrepresentations), try a free sample of David’s investment advisory service, The ETF Strategist. 
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About David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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The weak economy will push U.S. stocks lower perhaps substantially lower in the weeks ahead, says David Frazier, editor of the Newsmax newsletter The ETF Strategist. Aggressive investors can take advantage of this move by purchasing inverse equity ETFs (exchange-traded...
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