Tags: garrett | dow | crash

Garret: Dow 8,000 Before Long

By    |   Monday, 09 Nov 2009 01:09 PM

Olivier Garret, CEO of investment consulting firm Casey Research, doesn’t think that the Dow’s drop below 10,000 is necessarily a bad sign.

That’s because he thinks that even at 9,500, the Dow was overvalued. “We anticipate it will go … much further down,” Garret told Moneynews.com. “We wouldn’t be surprised to see it back under 8000 before too long.”

Economic recovery is definitely going to be shaped like a W, not a V, says Garret who considers the current rally to be “just a bear market recovery.”

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Garret notes that signs of a solid recovery would have to include jobs returning to the economy, corporate profits that increase because of sales instead of cost cutting, and a healthy banking system.

In other words, Garret says, recovery needs to be fundamental, not something that happens because trades made by software programs are pushing stock prices higher and banks are reporting profits that ignore the unhealthy condition of their portfolios.

Garret says he expects continued increase in unemployment over the next year. Current statistics from the U.S. Labor Department were flawed due to methodology that underestimated the number of unemployed, which is actually around 17 percent due to people who used to work full time but have had to take part time jobs because they are desperate and those who have given up looking.

“We anticipate (that unemployment) will be at 25 percent before too long,” says Garret, who does not anticipate a recovery in retail sales or retail real estate in the near future, and expects a new wave of defaults on residential mortgages due to increased joblessness for homeowners.

Nor does Garret believe that housing prices have declined as much as they will before recovery actually sets in.

“I think (we are seeing) a couple of things” Garret observes, because when you factor in the government’s tax incentive to buy new homes to poor spring and summer sales showings, the market doesn’t look so good — and the increase in adjustable resets over the next year will bring additional defaults as well.

“Most people, when they go from adjustable rates to fixed rates, will not be able to pay for the increase … and will default,” he says.

Garret is extremely bullish on gold, however. “With gold at $1000, people say, ‘We’re already at the top of the bubble,’ and the fact is, if you take the $800-plus gold level we had in the 1980s, it’s more the equivalent of $200-$3000 dollars (today)” so he sees it increasing over the next months and years “until it’s fully valued.”

“The dollar will continue to decline against gold and against all commodities and other currencies,” Garret says. “There are definitely signs that the Chinese and others are starting to diversify (currencies)” which means the Fed will have to start increasing interest rates.

“We think that interest rates will be one of the biggest plays going forward because of the devaluation of the dollar (and) the deficit,” Garret says.

“It’s clearly shifting today’s problem to future generations,” Garret observes. “We will pay for this for many years to come.”

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Olivier Garret, CEO of investment consulting firm Casey Research, doesn’t think that the Dow’s drop below 10,000 is necessarily a bad sign.That’s because he thinks that even at 9,500, the Dow was overvalued. “We anticipate it will go … much further down,” Garret told...
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2009-09-09
Monday, 09 Nov 2009 01:09 PM
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