Rising U.S. interest rates and continued debt bailouts around the world will send U.S. stocks crashing at least another 60 percent, says John Lekas, chief executive and portfolio manager at Leader Capital.
The Dow Jones Industrial Average will hit 4,200 to 5,000 in the second quarter of 2011, he says.
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Lekas wasn’t impressed with the nearly $1 trillion plan to stave off Europe’s debt crisis.
“We don’t think it’s enough. It’s kind of like feeding an alligator breadcrumbs,” he told CNBC.
As for U.S. interest rates, they’re headed higher, he maintains.
“The real story here is Libor. It’s going up a lot more than people expect,” Lekas said. The London Interbank Offered Rate is what European banks pay each other for loans in dollars.
Three-month Libor has risen to 0.497 percent, from 0.484 percent yesterday, according to data from the British Bankers’ Association, the steepest rate since July 24. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, was nearly the widest since Aug. 13, Bloomberg reported.
“We think that goes higher,” Lekas said.
“That’s going to put a lot of pressure on the U.S. government to compete with that rate. That will push U.S. Treasury rates up.”
Rising rates are bad for stocks, of course. And so are bailouts.
“What’s the next bailout?” Lekas asks. “Are we going to give China $6 trillion-$7 trillion?”
Others agree that stocks are in a fragile state.
“To the extent that anything calls into question the very robust outlook for corporate profits, it calls into question the level the market’s trading at,” Mark Freeman, a money manager at Westwood Management, told Bloomberg.
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