The likelihood of a large market crash is 80%, said investor John Hussman, Bloomberg reported.
Additional amounts of debt not being repaid will cause the stock market to reverse itself, said fund manager Hussman.
Although the S&P 500 Index catapulted by 64 percent from March, the Federal Deposit Insurance Corp. reported 4.94 percent of loans and leases being overdue by the end of the third quarter, reaching an all-time high.
“There is still close to an 80 percent probability that a second market plunge and economic downturn will unfold during the coming year,” Hussman wrote on his Web site.
He noted that bank earnings and capital ratios “have enjoyed a reprieve in the past couple of quarters, but delinquencies have not, and all evidence points to an acceleration as we move into 2010.”
Hussman predicts the financial markets will lose their gains and their activity is “simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle.”
Morgan Stanley, the investment bank, has also estimated that the market is expected to move sideways for the near term, Yahoo Tech Ticker reported.
French bank Société Générale predicts a greater calamity and believes the global economy will continue to suffer from large amounts of public debt, Yahoo Tech Ticker reported.
Part of the problem is the increasing number of people unemployed. Giving more loan will not solve the problem either, said economist Veronique de Rugy at the Mercatus Center, US News & World Report said.
“The reason why we're in the situation we're in is all the free money going around. Federal guarantees lead to moral hazard, as we saw with Fannie and Freddie,” she said.
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