Markets Going Further Down

Evans-Pritchard: Dow 4,000 by Summer

Friday, March 6, 2009 12:05 PM
By: Gene J. Koprowski

Global trade and economic output are collapsing at rates that outpace the Depression of the 1930s, and "shock and awe" policies are required from the U.S. government to revive global growth, says Daily Telegraph International Business Editor Ambrose Evans-Pritchard.

"This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun," Evans-Pritchard writes. "Social mayhem comes with a 12-month lag."

According to a survey by Merrill Lynch, Taiwan's exports to China fell 55 percent in January, Japan's fell 45 percent. Manufacturing output in the Shanghai region fell 12 percent in January.

"By comparison, industrial output in core-Europe fell 2.8 percent in 1930, 5.1 percent in 1931 and 3.9 percent in 1932," wrote Evans-Pritchard.

The economic situation is dire. But, the visual cues from John Steinbeck's terrifying characterization of Depression-era America have not yet arrived, as workers are not lining up at soup kitchens across the land.

Evans-Pritchard writes that the lowest interest rates in history are failing to gain traction globally.

A flurry of bond issues from the U.S. Treasury is swamping the debt market. The yield on 10-year Treasuries has climbed from 2 percent to 3.04 percent in eight weeks.

"The real cost of money is rising as deflation gathers pace," warns Evans-Pritchard.

U.S. house prices have fallen 27 percent, according to the Case-Shiller index. "The pace of descent is accelerating," said Evans-Pritchard.

The Dow could fall to 4,000 by this summer unless there is a quantum reduction in mortgage interest rates, says Evans-Pritchard.

Other “shock and awe” policies needed include forcing 10-year Treasury bills down to 1 percent and mortgage rates to 2.5 percent.

"This remedy is fraught with risk, but all options are ghastly at this point. That is the legacy we have been left by the Greenspan doctrine," says Evans-Pritchard.

"We are at the moment of extreme danger."

Nevertheless, other global economics experts see a recovery, albeit a slow one.

A statistical rebound in the second half of this year could be driven by a number of factors, according to Morgan Stanley Asia CEO Stephen Roach, including the Obama administration's stimulus bill.

But don't count on anything serious, Roach says.

Any 2009 upturn is likely to be anemic at best and not strong enough to keep the unemployment rate from rising to near 10 percent over the next year and a half.

“Since it's hard to call that a recovery, it looks to me as if this recession won't end until late 2010 or early 2011," Roach writes in The New York Times.


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