- Facts and opinions from Bob Chapman - Fontvieille, 03.07.2001, 23:57
Facts and opinions from Bob Chapman
The International Forecaster
Bob Chapman
Real inflation isn’t 3.9%, nor is unemployment 4.4%. They are double those figures, and our government, FED, politicians, business leaders, Wall Street, economists and the media, particularly CNBC, are deceiving us.
As M-3 bounces along with 15% growth, inflation is sure to remain firm. Now that we’ve had another interest rate cut real rates of return are solidly in the minus category. Economic numbers continue to weaken and overcapacity is endemic. The US, being a net debtor, won’t allow deflation because the result is depression. Then who prospers under these conditions? The answer historically is commodities and particularly gold, silver, platinum, palladium and oil and gas. Now that we’ve cut interest rates 2 3/4% we have to finally expect a lower dollar, which eventually leads to recovery.
The fall in earnings at investment banks and brokerage houses portends a severe turndown. Merrill Lynch’s earnings are off 50%, Goldman Sachs 24% and Morgan Stanley 36%. The next 90 days will bring some momentous decisions in the industry. M&A is off 40% from last year in the first six months of the year and IPO’s 59%. At Morgan Stanley M&A fell 55% and IPO’s 29% and at Goldman Sachs banking revenues fell 50%. All firms have begun to cut commissions for brokers usually from 45% to 25%. Worse there is no evidence it will get better soon and in fact it looks like the situation will worsen. Merrill had 72,000 brokers last year. We expect 50,000 this year.
The S&P 500 Index is 23 times projected 2001 earnings and 19.5 times 2002 earnings. We believe the 2001 earnings are inflated by 20% and 2002 by 30%. Historically the Index has reflected 14 times earnings. Today non-tech portions of the S&P reflect 15 times earnings, but the tech sector is still 30 times. As you can see if we are correct a major correction will take place in the S&P and Dow this year and another correction in 2002. A falling dollar would help earnings, but inflation would climb as will gold and silver.
The 1996 copper fraud scandal has been settled. Fined for assisting in rigging markets for hundreds of millions of dollars were Merrill Lynch fined $18.1 million, J. P. Morgan $10.8,Credit Lyonnais $3.9, Morgan Stanley $1 and Global Minerals $16.5 million. No punitive action was taken against the firms and no criminal action. They just bought their way out as usual. The question is how many times have they done this and not gotten caught?
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